September 25
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Germany will offer tax breaks worth 10 billion euros to help cope with rising inflation, the head of the German Finance Ministry Christian Lindner announced, reports AFP.

The package would raise the basic nontaxable exemption as well as the level from which the maximum income tax rate of 42 percent would apply. Families would also get higher tax credits for dependent children.

Inflation in Germany reached 7.5 percent in July, down slightly from June's 7.6 percent, driven mainly by higher energy prices.

Lindner said the plan is primarily aimed at combating the problem of employees facing higher tax burdens due to wage increases to combat inflation. As a result, profits are essentially being negated by higher taxes.

A phenomenon called cold progression also tends to have a stronger impact on lower earnings.

Lindner said 48 million Germans will face higher taxes starting in January 2023 unless relief is offered. "For the state to benefit at a time when daily life is becoming more ... is not fair and also dangerous for economic development," he said.

The tax breaks come on top of a €30 billion package launched by Chancellor Olaf Scholz earlier this year to help consumers beat inflation.

The previous package included fuel tax cuts and public transportation fares, valid throughout Germany, at just 9 euros a month in June, July and August.

But it is clear that the clouds hanging over Europe's largest economy are only thickening as the country approaches the colder months.

Germany, with its export-oriented industries, is particularly vulnerable to supply chain bottlenecks and raw material shortages caused by the pandemic. But now Germans are also facing a doubling of energy bills .

Electricity shortages not only reduce the purchasing power of consumers, but also hurt German industry, much of which relies on cheap energy to produce export goods. Workers in Europe's largest economy thus face a double blow in the form of higher costs and the growing threat of job losses, as large companies consider shutting down some plants because it may not be economically viable to keep production lines running.

German growth stalled in the second quarter of the year, but analysts warn that a recession in the second half of the year will be inevitable.

In their latest forecast in March, economic advisers to the German government estimated that gross domestic product would grow by 1.8 percent in 2022.

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