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Germany Cuts Taxes on Overtime to Boost Productivity and Compete Globally

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[INews24, Jeong Tae Hyun, Reporter] The German government is pushing a policy to reduce taxes on overtime work. This is an effort to reverse the situation where productivity falls due to shorter working hours than competitor nations.

On the 14th, local time, the Financial Times (FT) reported that the German government is preparing a growth plan to enhance compensation for long working hours. It is expected to be revealed next month.

Newsis

The FT reported, “The reform plan will include tax reductions for overtime work and welfare reforms. The German Ministry of Finance is pushing to reduce taxes on work exceeding 41 hours per week and change the unemployment benefit system.”

The FT explained that reducing working hours across Europe after the COVID-19 pandemic has led to declining economic growth and competitiveness. The German government is seeking alternatives as the labor force shrinks due to aging. It was evaluated that there is a lack of incentives to increase working hours, as low-wage workers in Germany have to pay a significant portion of their additional income as taxes, even if they work more.

Germany has the shortest average working hours among the developed countries, as defined by the Organization for Economic Cooperation and Development (OECD). The average annual working hours are also decreasing. According to the OECD, Germans’ yearly average working hours have decreased by 30% over the past 50 years, falling to a quarter of the level in the United States.

Jörg Kukies, State Secretary for Economic, Finance, and European Affairs at the Federal Chancellery, explained, “Everyone only talks about the economic cycle of our economy, but even if it goes back to an annual growth rate of 0.6%, 0.8% per year, it cannot solve structural problems. That’s why we are trying to solve the problem.”

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