Germany plans taxes on young to help the old

Germany is proposing to levy extra taxes on the young to pay for the costs of the country's growing numbers of old people,under government plans for a "demographic reserve" levy.

Angela Merkel's Christian Democrats have drafted proposals forcing all those over the age of 25 to pay a proportion of their income to cushion Germany against a looming population crisis.

The German Chancellor's ruling party is seeking extra sources of cash to pay for soaring pensions and bills for social care costs at a time when Germany's "baby boomer" generation is ageing amid a decline in the birth rate.

The proposals - to be adopted by Chancellor Merkel's party cabinet after the Easter break - have not yet set a figure on the age tax but officials are considering a special levy of about one per cent of income.

A slump in Germany's population means that as more and more ageing Germans retire there are less and less young workers to replace them as taxpayers to fund generous welfare and pension arrangements.

Estimates from Germany's federal employment agency, predict that the workforce will be reduced by seven million people by 2025.

"We have to consider the time after 2030 when the baby boomers of the 50s and 60s are retired and costing us more in health and care costs," said Guenter Krings, who drafted the Christian Democrat "position paper".

Germany, Europe's biggest economy has one of the lowest birth rates in Europe and its population shortfall has not been offset, as in Britain, by immigration or by policies to encourage large families, as in France.

The revenues raise from the new tax would not be used to fund pensions but would be used to offset a sudden explosion in social security costs as the number of people of working and taxpaying age dwindles over the next 15 years.

According to Germany's federal statistics office, the country's population is forecast to decline from 82 million people today to as low as 65 million by 2060.

The plans will become a battleground in German elections next year amid opposition claims that social security shortfalls have been caused by spending cuts and that the new taxes will cause resentment towards the elderly from younger taxpayers.

Franz Muentefering, a former German vice-chancellor and social democrat leader, has rejected the tax as unnecessary if social spending is maintained without further austerity cuts to existing expenditure. "Germany does not need a special tax," he said.