2024-07-08 13:54:44
Among Germany’s plans to address the shortage of skilled workers is a proposed plan to introduce tax incentives for new arrivals.
The idea was explained again by the Minister of Federal Finance Christian Lindner, of the Free Democrats, (FDP) last week: He thought that skilled worker immigrants could receive income tax in their first three years in Germany.
The reduction will be set at 30 percent of the average salary during the employee’s first year, then 20 percent during their second year and ten percent for their third year.
The reduction will also be limited to salaries within the set range. After five years, the policy will be re-evaluated.
The tax reduction plan has not been approved. It comes as part of a package of planned measures included in the 2025 budget that the federal government hopes will boost economic growth.
READ ALSO: How Germany’s 2025 budget might affect you
Germany growing shortage of skilled workers – especially in critical sectors such as health or IT – is very worrying for the country’s economy. It is getting worse as many baby boomers head into retirement.
The only immediate solutions are encouraging more people to work, improving integration and educational opportunities for immigrants and refugees, and attracting more skilled workers from abroad.
READ ALSO: Hit by a labor shortage, Germany hires students to drive trains
In their efforts to tackle the same problem, the Netherlands and Austria already offer tax relief to skilled workers from abroad.
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What did the German leaders say about it?
The three leaders of the light coalition government – including Lindner as well as Chancellor Olaf Scholz (SPD) and Economy Minister Robert Habeck (Greens) – all supported the idea in the beginning as it was in them. 2025 budget plan announced the week.
Finance Minister Christian Lindner, Chancellor Olaf Scholz and Minister of Economy and Climate Protection Robert Habeck held a conference on the 2025 budget in Berlin. Photo by RALF HIRSCHBERGER / AFP
For his part, Habeck said the measure could close “a huge gap in skilled workers”.
As reported by DPA, during Habeck’s previous visits to Scandinavian countries he found that the better tax conditions there have encouraged foreign workers to go there.
He also emphasized that other European countries have taken similar measures.
“It’s worth trying, and in the end it’s also good for German companies,” added Habeck.
‘Distinction’ against the Germans
Politicians from opposition parties have criticized the plan.
Economic policy spokeswoman for the CDU parliamentary party, Julia Klöckner, told the German newspaper Chance that the plan amounted to “exception to the country”.
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Therefore some Germans (and former settled foreign workers), who will be left to pay their income tax in full, may feel the same way.
The far-right Alternative for Germany (AfD) and the Left Party (Die Linke) are also against the proposed tax payment plan.
Some German trade unions also joined in the criticism. Yasmin Fahimi, head of the German Confederation of Trade Unions (DGB), called the proposal “socially frightening”.
Instead, Fahimi thinks that public signs for improved child care and health benefits would be a better way to recruit skilled workers.
The Organization for Economic Co-operation and Development (OECD) keeps track of which countries are seen as the most or least attractive to foreign workers.
Of the 38 OECD countries, Germany dropped from 12th place in 2019 to 15th as of 2023. According to the OECD, “income and tax” is the second most important measure. “Talent Attraction Index”after “qualifying benefits”.
Although the coalition leaders are pushing for this change, it is worth noting that the proposals have not been finalized and approved. It looks like there will still be a lot of negotiations before that is due to happen in the coming weeks.
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