August 28, 2018 / 11:00 PM / 3 months ago

German coalition partners agree tax cuts, pension reform

BERLIN (Reuters) - German Chancellor Angela Merkel’s conservatives and their Social Democrat (SPD) junior coalition partners agreed on Tuesday to reduce paycheck contributions toward the country’s unemployment insurance system, sharing a slice of bountiful revenues with taxpayers.

Sources at the meeting at the chancellery in Berlin told Reuters that the ruling parties had agreed to cut the contribution rate by 0.5 percentage point to 2.5 percent starting in 2019.

Under current rules, salaried employees contribute 3 percent of their pre-tax income toward the unemployment insurance system.

The German economy is enjoying a growth cycle supported by low interest rates, increased state spending and a robust labor market that sustains private consumption.

The government has run a budget surplus since 2014 and Merkel’s Christian Democrats, their Christian Social Union Bavarian allies and the center-left SPD have promised to ease the tax burden on Germans.

The coalition partners in June approved tax relief for families to the tune of 10 billion euros a year.

The cabinet will be next month asked to approve the reduction in contributions to the unemployment benefits system.

In return for its backing of the tax decrease, the SPD has secured support from the conservatives for its plan to stabilize pensions at 48 percent of the average wage by 2025.

Reporting by Thorsten Severin, writing by Joseph Nasr, editing by G Crosse

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