Europe

Group of German millionaires seeking to be taxed at a higher rate

A group led by Ralph Suikat sees the tax regime as morally bankrupt

Social Democratic Party candidate for chancellor Olaf Scholz. Photograph: Theo Klein/Pool/EPA

Derek Scally's face
Derek Scally in Berlin
Mon Sep 20 2021 - 18:00

Turkeys wouldn’t vote for Christmas, but German millionaire Ralph Suikat hopes his country will elect a government next Sunday to charge him more tax.

The 55-year-old investor is one of 40 wealthy Germans who have started “Taxmenow”, a timely initiative in an election campaign where tax and wealth redistribution are key battle grounds.

Three decades after earning his fortune with an IT company providing software for insolvency managers, Suikat views German tax policy as morally bankrupt.

Early in his career, he remembers how Helmut Kohl’s government wanted 53 per cent of his earnings; then it was cut to 42 per cent – where it has stayed. But the shift from the costly Covid-19 pandemic to cautious recovery is, he thinks, the moment to ask crisis winners to make a greater contribution.

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“While others lost their jobs, had to close their shops or lost their homes, the number of German millionaires actually rose in the crisis – by 4.7 per cent,” he says.

Germany’s current top tax rate is a holdover from centrist Social Democratic Party (SPD) chancellor Gerhard Schröder, whose 1998 election victory was linked to “third way” politics and so-called “trickle-down” economics.

Simply put, this argues that reduced burdens on the wealthy will see benefits – in particular business and job creation – trickle down through society.

Under attack

Now that contested economic theory is under attack on the campaign trail. All German parties promise to spare middle incomes, more or less, but the centre-right Christian Democratic Union (CDU) and liberal Free Democrats (FDP) are the last believers in trickle-down economics, proposing tax cuts for top earners.

Meanwhile, the centre-left SPD and Greens are calling for a €12-an-hour minimum wage and a fiscal overhaul: the SPD wants to push up the tax bracket before the top tax rate kicks in; the Greens want to push up the top tax rate to 48 per cent. In addition to tax increases, Germany’s centre-left wants an additional wealth tax for top earners and reform of the inheritance tax regime.

Forecasts by Munich’s Ifo economic institute priced the CDU and FDP’s tax cut plans at €18 billion and €60 billion respectively in lost exchequer income, widening Germany’s income equality. The two parties insist a strong trickle-down effect will lead to greater economic recovery.

The Ifo forecast for SPD and Green tax proposals come in at price tags of €9 billion and €2 billion respectively.

SPD chancellor hopeful Olaf Scholz, Germany’s outgoing federal finance minister, has said any tax plans have to be placed alongside the final bill for pandemic emergency spending, expected to come in at about €400 billion by year-end, which will push up by 15 points the country’s dept-to-GDP ratio to about 75 per cent.

“We’re still in a better position after the pandemic than some countries before,” he said at the weekend, “but there is no room for tax cuts for the rich like the CDU and FDP want.”

His SPD election programme is a play for the political and fiscal middle ground, gambling that voters are open to a soft left shift, including higher top taxes, as Angela Merkel leaves office with a mixed economic record.

Low-wage economy

Her CDU points out that Germany’s jobless rate is now half that when she became chancellor in 2005. But Germany’s low-wage economy now employs about nine million people, a quarter of the total workforce. In sectors such as office cleaning, retail and carers, up to 16 per cent of Germans earn so little that they are entitled to taxpayer-financed top-up payments or other non-cash welfare entitlements.

While the average hourly wage in Germany is €18, two-thirds of workers have an hourly rate of €10 or less. At the other end of the income scale, a recent Ifo study of German tax loopholes found a 20 per cent gap between gross income and actual taxable income – compared with 12 per cent in the US.

“Our rich have far greater possibilities to play poor for the taxman,” the report noted.

With his campaign, Ralph Suikat says he hopes Germany’s next government will, in fiscal terms at least, go back to the future. “Perhaps a return to the tax rates under Helmut Kohl would be the right way to go,” he says, “to restore more balance.”