Anyone who has to drive their car to the gas station this autumn will experience directly at the pump what rising prices mean for their wallets.

Energy prices are one of the drivers of the inflation rate, so the shock when filling up is particularly great.

But rising prices can also be observed in the grocery store or at the weekly market.

The Bundesbank currently estimates inflation at 6 percent.

However, the nominal principle still applies in tax law.

It says: 1 euro is 1 euro.

The saver can therefore not claim the loss in value that he suffers over the year.

Even if he can buy less with his money in the bank than in the previous year, the investor is not allowed to make a write-off - in contrast to the manufacturer, who can write off his machine.

Manfred Schäfers

Business correspondent in Berlin.

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But for almost a decade, the ruling coalition has taken inflation into account, at least when it comes to income tax, if not automatically, at least with a kind of self-commitment.

In March 2012, the Bundestag commissioned the federal government to submit a report every two years on the creeping additional burdens resulting from the interplay of inflation, wage increases and the progressive tax rate.

In this case, experts speak of cold progression.

The income tax was then adjusted accordingly.

In October 2020 there was the fourth report on cold progression.

In the same month, the Bundestag passed the latest tariff correction with the Family Relief Act.

A month later, the Federal Council agreed.

Devaluation is only partially offset

The benchmarks in the income tax rate have been postponed this year by 1.52 percent, next year they will be increased by 1.17 percent. But as not only motorists are currently painfully experiencing, inflation has developed differently than expected. In short, the result is: This year inflation will not be overcompensated. Rather, the inflation is only partially offset by the tariff correction. In concrete terms, this means that taxpayers pay more, although they can afford less with their income.

If the currently forming traffic light coalition holds on to the promise to compensate for the cold progression, this will have another effect: The tax revenue will be lower than forecast in the most recent estimate because the working group always works on the basis of applicable law. In times of higher inflation rates, this oversubscription of future income is inevitably greater than in previous decades. Jens Boysen-Hogrefe from the Kiel Institute for the World Economy did the math for the FAZ. His result: With the shift in the basic tariff values ​​in 2021, the effect of the cold progression was undercompensated by 3.5 billion euros - in other words, taxpayers were not relieved enough.

According to his analysis, the undercompensation has repercussions. “Despite the tax progression reporting, there will be additional income in the coming years from the cold progression resulting from the underestimation of inflation for the year 2021,” says the economist. He is a member of the tax assessment working group, which predicts for the federal and state governments in May and November what income they can expect and can therefore base their budget plans on. Boysen-Hogrefe has also estimated what adjustments will be necessary in the next few years to compensate for the cold progression. "Based on the forecast of the joint forecast, taxpayers should be relieved of almost 5 billion euros in 2022 and again by around 4 billion euros in 2023," he predicts.

In the most recent tax estimate, which predicted a noticeably greater financial leeway for the presumably next government composed of the SPD, Greens and FDP, only completed legal amendments have been taken into account, as usual - thus not the upcoming compensation for the cold progression.

"As a result, the working group tends to overestimate the actual tax revenue, provided that the macroeconomic basis of the tax estimate otherwise applies," admits the deputy director of the Kiel Research Center for Business and Growth frankly.

However, the federal and state governments typically take this into account in their financial planning as a global shortfall.