Germany Moves to Scratch Reunification Tax Worth $21 Billion

(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. Nearly three decades after the fall of the Berlin Wall, Germany is moving to eliminate the so-called solidarity tax that helped finance reunification.The 5.5% income tax is to be abolished from 2021 for the vast majority of those currently paying it, Finance Minister Olaf Scholz said in Berlin on Monday. In 2018 the levy generated total revenues of 18.9 billion euros ($21.2 billion). Under the proposal, only a few, wealthy tax payers would continue contributing what locally is referred to as the Soli, Scholz said at the finance ministry in Berlin.The announcement comes amid growing pressure for increased stimulus as Europe’s largest economy slows and risks entering a recession. The parties in Chancellor Angela Merkel’s coalition lost considerable support in opinion polls in recent months. In two regional elections on Sept. 1 in Saxony and Brandenburg, Merkel’s Christian Democrats and Scholz’s Social Democrats, could lose for the first time since reunification in 1990 – to the right-wing Alternative for Germany, or AfD, polls suggest."It’s also a contribution to economic expansion in Germany, we know the economy is a bit weak," Scholz said.While the tax phase-out was already part of the coalition agreement between the ruling parties following 2017 parliamentary elections it won’t take effect until more than three years later, according to the proposal.To contact the reporter on this story: Birgit Jennen in Berlin at bjennen1@bloomberg.netTo contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Raymond Colitt, Iain RogersFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

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