Opinion raises doubts about tax incentives for foreign skilled workers
The traffic light coalition plans to attract foreign top talent to Germany with tax incentives, but the proposal is controversial. Criticism comes from Labor Minister Heil and the opposition. Even Finance Minister Lindner sees a need for further discussion. Now, a study raises legal concerns.
The scientific service of the German Bundestag has significant doubts about the planned tax rebate for foreign specialists. If the law is interpreted strictly, employees who have already been working in Germany for some time would be unlawfully disadvantaged. "The disadvantage may be suitable and necessary to achieve the economic policy goal, but it is no longer appropriate," the study commissioned by the Left Party (BSW) states.
At the same time, the experts point out that the Federal Constitutional Court has granted the legislature significantly more leeway in tax subsidies in the past. If one applies the more generous review standards used by the Constitutional Court, "the tax discrimination could be justified," the study states. In that case, it would be sufficient to name a reasonable cause for the different taxation.
As part of its "growth initiative," the traffic light government plans to introduce tax incentives for taking up work in Germany to make the country more attractive to foreign specialists. It is proposed that newly arrived specialists can exempt 30, 20, and 10 percent of their gross salary from tax for the first three years. This exemption is intended to apply, with an upper and lower limit, to "top talents" from abroad who can receive a tax "recruitment bonus."
Traffic light coalition divided on tax relief
The federal government refers to similar models practiced by many other European countries to attract urgently needed specialists from abroad. Labor Minister Hubertus Heil views the planned tax relief for foreign specialists critically. "That belongs to the category 'We need to take a closer look at that'," the SPD politician said in early July on Deutschlandfunk. "I must admit that I am not particularly happy about the agreement on this point because it can lead to misunderstandings."
Finance Minister Christian Lindner sees a need for further discussion. The federal government has noticed that the proposal has been received coolly by employers, Lindner said. "Therefore, we will initially seek dialogue. Because we will not introduce anything that is not actively used by employers. Otherwise, it makes no sense."
The parliamentary group leader of the FDP, Christian Dürr, defended the plans. "We want to introduce a recruitment bonus for specialists that we urgently need," he said. "The large majority of EU countries also have such a regulation. And as the largest economy in Europe, we have so far lagged behind in this area."
However, the scientific service of the German Bundestag is of the opinion that this justification is not sufficient. There are "considerable grounds for applying a strict review standard" - among other things, because taxpayers cannot influence whether they receive the rebate or not, and because taxation is no longer based on financial performance.
The report was commissioned by Sahra Wagenknecht, founder of the Left Party. She stated that the results were disastrous for Federal Chancellor Olaf Scholz, Vice-Chancellor Robert Habeck, and Finance Minister Christian Lindner. "A tax advantage for foreigners would be social dynamite!" she declared. The idea showed that the federal government had no feel for the mood in the country and was working poorly. "The traffic light coalition must cancel this discriminatory tax treatment of foreigners," Wagenknecht demanded.
However, Martin Werding, an economist from Bochum and member of the Council of Economic Experts, cannot understand the political uproar over the tax preferential treatment of foreign skilled workers. "The tax discount for foreign skilled workers is worth a try. Highly qualified individuals are a scarce resource, there is international competition for talent - so why not give it a try?" Werding told Wirtschaftswoche. "Whoever comes contributes to prosperity - a debate about envy is out of place."
Sahra Wagenknecht, the founder of the Left Party, strongly criticized the proposed tax incentives for foreign specialists, stating that it would be discriminatory and socially destructive. The study commissioned by her party raised legal concerns, suggesting that the tax exemptions could potentially unlawfully disadvantage employees who have been working in Germany for some time.
Despite the controversy, Finance Minister Christian Lindner expressed the need for further discussion on the proposal, acknowledging that employers have responded coolly to the tax relief for foreign specialists. The federal government is planning to introduce tax incentives as part of its "growth initiative" to attract top talent from abroad and make Germany more competitive, but the legislation is facing significant opposition.
