Schaeuble Says Opposition-Led States Blocked Workers’ Tax Relief

Germany’s upper house of parliament, where parties that are in opposition at national level hold a majority, blocked the government’s attempt to grant tax relief to low- and medium-income earners, Finance Minister Wolfgang Schaeuble said.

The upper house, controlled by the Social Democrats and the Green party, blocked a bill that would have eased cold progression, or jumps in income tax that apply when employees move up income brackets, Schaeuble said late yesterday in an e- mailed statement. The chamber backed an increase in the tax-free allowance for 2013 and 2014, he said.

“The blockade on cold progression means tax increases through the back door for many workers in Germany next year,” Schaeuble said. “It’s pleasing that we were able at least to adjust the basic allowance, but this was required by the constitution anyway.”

The rejection of the tax bill and a proposed accord with Switzerland over undeclared bank accounts shows Chancellor Angela Merkel’s troubles in getting bills approved by the upper house, the Bundesrat, as legislative elections approach next autumn.

The agreement with Switzerland would have imposed a withholding tax on Swiss bank accounts and helped to end German authorities’ practice of buying stolen Swiss bank data to identify tax evaders. Swiss banks are fighting to stem withdrawals by customers concerned about a widening hunt for tax dodgers.

The opposition’s refusal to back the deal “will lead to federal, state and local tax revenue losses of double-digit billion-euro amounts,” Schaeuble said. “A large part of German tax claims related to the past will be forever lost.”

The German government planned for 499 million euros ($652 million) in revenue from the Swiss tax accord for the 2013 federal budget, according to German Finance Ministry spokeswoman Silke Bruns.

To contact the reporters on this story: Rainer Buergin in Brussels at rbuergin1@bloomberg.net; Joseph de Weck in Berlin at jdeweck@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net