Unlike in Britain, income tax thresholds in Germany are not automatically raised in line with inflation, but the government has opted to do so to undo the effects of fiscal drag.
In the UK, the reverse has happened. Although the thresholds would normally rise in line with inflation, they have been frozen until 2028-29. Combined with high levels of inflation, this means an extra 3.7 million people will pay income tax who would otherwise not have done, according to the Office for Budget Responsibility (OBR).
Under Mr Lindner’s plan, Germany’s tax-free income tax allowance will be raised in three stages until 2026 and the threshold for the top rate of tax will also be increased, according to Reuters.
Andrew Kenningham, the chief Europe economist at Capital Economics, said: “They are doing what the UK is not doing. Essentially it was a stealth tax that is not going to happen.”
He added: “What they’re doing is basically good housekeeping that they’re just updating the tax bands to reflect the fact that there’s been very high inflation for a couple of years. It should be completely standard practice.”