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Bundesbank calls for tax reduction

August 15, 2016

Germany's central bank has come out in favor of reducing the overall tax burden for Germans in light of a continuously robust labor market and annual balanced budgets. But it also urged a less popular change.

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Image: picture-alliance/dpa/E.Weingartner

The German economy was set to stay on a path of growth this year, with a slight spring dent no big cause for alarm, the Bundesbank said in its latest monthly report on Monday.

It noted that the mood among executives across Europe's powerhouse had improved considerably in recent weeks as worries over the UK's pro-Brexit vote abated.

The central bank appeared confident that private consumption would once again be a pillar of economic expansion in the third quarter, following 0.4-percent growth in the previous three months.

Record-low interest rates put Germany in a position to obtain ultra-cheap loans, if it needs them. The Bundesbank emphasized, though, that it expected Berlin to do without fresh borrowing in 2016 once again and log a budget surplus as envisaged by Finance Minister Wolfgang Schäuble.

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The central bank said full coffers should be used to reduce people's tax burden, specifically mentioning the possibility of lowering employment insurance tax. It argued that consumers would have more money in their pockets to spend and fuel the economy.

But the Bundesbank also warned that the current retirement age had to be raised to ensure the future viability of the pension system, with people living a lot longer now on average. It suggested workers should retire aged 69, a suggestion not very popular with trade unions in the country.

Right now, the official retirement age stands at 67 in line with a scheme of staggered increases to be completed in 2029.

hg/jd/ (AFP, Reuters, dpa)