Tax Reform of 2015-16 Measures and Overall Assessment

Most of the measures announced under the heading of the tax reform 2015-16 will take effect in 2016. By 2017, the overall impact of the reform will result in a revenue loss of € 5.2 billion or 1.4 percent of GDP. The key element is an adjustment of the income tax schedule that will reduce wage and income tax revenues by € 4.35 billion. Moreover, the negative tax will be extended for employees and newly introduced for old-age pensioners, self-employed persons and farmers. The transport tax credit and the child allowance will be raised and the commuter subsidy for low-wage earners increased. Companies and entrepreneurs will benefit from some minor tax relief measures. The reform is to be financed mostly by measures to combat tax fraud, by the abolition of exemptions in income tax and VAT, and by a higher withholding tax on dividends and capital gains from the sale of real estate. In addition, spending cuts in the federal and the state government budgets and the expected positive effects on growth shall ensure that the impact of the 2015-16 tax reform on the general government balance be neutral in the medium term.