September 28, 2017 / 9:05 AM / 10 months ago

Germany should reform tax system, cut welfare contributions - institutes

BERLIN, Sept 28 (Reuters) - The next German coalition government can count on record budget surpluses over the next two years and should use this fiscal room to lower income taxes and social welfare contributions, economic institutes said on Thursday.

“Indications are that this year’s overall state budget surplus will rise from 26 billion euros to 28 billion euros,” the economic institutes said in their joint forecast.

The surplus of all state levels - including federal government, regional states, municipalities and social funds - is projected to soar to 37.3 billion euros in 2018 and to 43.7 billion euros in 2019, they added.

The institutes said Germany should utilise the additional fiscal room to improve the economic conditions and reform the tax and welfare system, especially to help low-income workers.

“In light of the high burdens imposed on labour incomes in the form of levies and a particularly sharp increase in direct tax revenues, the focus should be on the income tax rate curve,” the institutes said.

“However, there is also scope for action in terms of social security contributions, which are also of particular significance to low-income workers, especially with regard to unemployment insurance,” they added.

The institutes called for a reform of the state pension system given that German society is ageing fast. They did not spell out what the reforms should be.

“The German economy is currently undergoing an interim high in terms of potential growth rates, which will turn out considerably lower in the coming decade for demographic reasons,” said Stefan Kooths, senior researcher at the Kiel Institute for the World Economy.

Chancellor Angela Merkel has ruled out lifting the retirement age to 70 as some in her party have suggested. In her first term from 2005-2009, Merkel introduced a phased increase in the retirement age to 67 from 65 until 2029. (Reporting by Michael Nienaber,)

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