August 29, 2019 / 11:19 AM / 19 days ago

German minister eyes tax cuts for 'Mittelstand' as economy cools

BERLIN (Reuters) - Taxes would be cut for Germany’s Mittelstand, the small and medium-sized businesses that form the backbone of Europe’s biggest economy, under a proposal the country’s economy minister made on Thursday.

FILE PHOTO: German Economy Minister Peter Altmaier attends the weekly German cabinet meeting at the Chancellery in Berlin, Germany, August 28, 2019. REUTERS/Annegret Hilse/Files

The plans by Economy Minister Peter Altmaier, who has been criticised by Mittelstand companies for not doing enough to help them in the past few months, include limiting tax on retained profits to 25%.

Hit by trade disputes and Brexit uncertainty, the export-oriented German economy contracted in the second quarter, and Chancellor Angela Merkel’s coalition government disagrees on how to deal with the slowdown.

“We are shaped by a strong and world-oriented Mittelstand like almost no other country,” Altmaier said. “A corner stone of my Mittelstand strategy is to improve economic conditions. “We must reduce the tax burden on the Mittelstand.”

The Mittelstand companies account for 35% of corporate turnover in Germany and 60% of jobs, Altmaier said. They tend to be family-owned, have up to 500 workers and annual revenues below 50 million euros.

He also proposed capping tax for business partnerships at 45%, limiting welfare contribution costs to less than 40%, and cutting red tape to provide savings of 1 billion euros ($1.11 billion).

He reiterated his desire to completely abolish a solidarity tax, much of which has gone to support eastern states since reunification in 1990, after the cabinet last week agreed to exempt most taxpayers from it.

Altmaier, a member of Merkel’s conservatives, put no figures on the total savings he had in mind and gave no details on the financing of them.

Some Social Democrats (SPD), junior partners in the ruling coalition, want the government to ditch a long-standing commitment to achieving a balanced budget and be prepared to issue new debt to fund investment, for example in an ambitious new climate package.

However, many of Merkel’s conservatives will not countenance loosening the purse strings to help the economy and prefer tax cuts.

The BDI industry association welcomed Altmaier’s plans, describing them as the “correct instruments” to strengthen small and mid-sized businesses and urged the minister to push through his ideas against any political resistance.

($1 = 0.8973 euros)

Reporting by Madeline Chambers, editing by Larry King

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