Less Money for Germans
January 2, 2007
A wide range of consumer goods in Germany has become more expensive, thanks to a special New Year's present from the government in Berlin. It's imposed a 3 percent valued added tax increase on clothes, cars, furniture, electrical appliances and other goods, bringing VAT up to 19 percent.
This is expected to reduce the shopping activities of ordinary citizens after many a shopping spree in 2006. Opposition leaders such as Guido Westerwelle, the leader of Germany's free-market, liberal Free Democratic Party, protested loudly against the tax hike which the government says is needed to consolidate the budget and reduce state debt.
"How is, say, a family of four supposed to save money when faced with spiraling energy costs and a state policy that's reaching even deeper into their pockets?" Westerwelle asked. "Politicians from the grand coalition government are calling on citizens to put more money aside for old age insurance, but they're not willing to ease people's financial situation on the tax front. This is really absurd!"
No drastic price hikes?
However economic pundits believe that in many cases prices for consumer goods will not really go up tangibly. Retailers will have to decrease their profit margins, and some of them already increased prices in the old year.
"Retailers are not in a position to pass on the value-added tax hike to consumers just like that," said Hubertus Pellengahr, who heads Germany's association of retailers. "This applies in particular to January -- a traditional month of discount sales here in Germany."
But once again, it's drivers who are expected to suffer most from the VAT hike which also applies to fuel. Johannes Hübner from Germany's AVD motoring club said drivers should brace for higher prices at fueling stations across the country.
Gas goes up
"We expect fuel prices to increase by another three to four cent per liter," he said. "We'll have to see whether oil companies will keep prices that high throughout the year. Much will depend on developments on the global energy market. But I think that consumers will have to put up with a two-cent-per-liter hike on average in 2007."
Driving may also become more expensive for haulers using inter-city road connections. The road toll system for heavy trucks no longer applies to the autobahn motorway network only, but has been extended to three heavily frequented overland roads leading through several German states.
More money for pension funds
Germans will also have to fork out more this year for their contributions to the statutory pension system. Premiums have increased by almost half a percent to total 19.9 percent of people's incomes. Taxes on capital gains will be levied at a much lower ceiling.
And a special wealth tax goes up by 3 percent for individuals making more than 250,000 euros ($330,000) a year. Also, special benefits for commuters are cut completely if the distance between their homes and workplaces is under 20 kilometers (12.4 miles).
Checking welfare recipients
In addition, agencies are now taking a closer look at who's entitled to state benefits.
"Whoever turns down an acceptable job offer will see their unemployment benefit payments reduced," said John-Philip Hammersen, a spokesman for the Central Employment Agency in Nuremberg.
He added that the abuse of the welfare system has to be curbed dramatically.
"Regulations to this effect will be applied more stringently from now on," he said. "Those who opt to turn down a reasonable offer for the second or third time will risk losing up to 100 percent of all benefits."
Nevertheless experts don't expect a new round of public moaning and groaning over this year's financial challenges. After all, most people here do seem to appreciate that the good times are over and unlikely to return any time soon.