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Germany: Tax increase for freelancers

A bill proposing new taxes on freelancers may not help Germany jump-start innovation or its entrepreneurial culture.

above age 27 are not uncommon. Also, a phenomenon attributed to looser labor rules and the financial crisis has been the emergence of fewer full-time employees as well as the "praktikant kultur" (intern culture), where many young people do six or seven unpaid internships in a row through their 20s before landing some kind of work, even if it isn't permanent or full-time.

And though the unemployment rate in Germany has dropped to record lows in recent years and is currently at 6.7 percent, the numbers hide the amount of underemployed people, especially high among the young, those in the east of the country and in the capital, which lacks industry, and jobs.

Berlin: 'Poor but sexy'

Germany’s “poor-but-sexy” bohemian metropolis is a city of 3.5 million where a colorful mix of artists, students, opera singers and vintage clothing shop owners coalesce and startups particularly in IT thrive on the city’s surprisingly affordable rents and high quality of life.

On weekdays, cafés in Berlin’s trendy Kreuzberg and Prenzlauerberg neighborhoods are humming with the sounds of freelance graphic designers, writers and creative types, chatting over coffee and pounding away at their Mac laptops.

At a co-working space called Co-up in Kreuzberg, Till Klampaeckel, who works as a web developer and technical manager, says he has been a freelancer for more than 10 years. Though Klampaeckel already makes regular payments to a pension fund and wouldn’t be affected by the ministry’s plans, many around him would — and he objects to the principle.

“I like my flexibility, that at the end of the day I can do what I want,” said Klampaeckel. “And I think part of that is deciding how I want to pay health insurance and how I decide to save for my retirement.”

When news of the new proposal leaked, Tim Wessels was so alarmed that he launched an online petition against it. Circulating in the media, on freelance forums, Facebook, and by word of mouth, the number of signatures exploded.

“I was totally surprised,” he said. “I don’t know if I talked to the right person or what, but somehow there was a dynamic where the number of signatures started to double on a daily basis.”

He gathered 80,000 signatures, granting him a meeting with Labor and Social Affairs Minister Ursula von der Leyen. Wessels says she promised to take the torrent of criticism into account, and insisted there would be exceptions, such as an income-based contribution for very low earners and grace periods for those who are just starting out and young entrepreneurs.

Still, Wessels, who has been self-employed since he was 15, says the tax would present a bureaucratic nightmare, and threaten the livelihoods of many colleagues and friends.

“The fear is that it wouldn’t be worth it for them anymore to be self-employed,” he said, adding that an income-based mandatory contribution for all freelancers — like in the US and most European countries — would make more sense.

But the ministry’s deputy spokesman says Germany does support self-employment and innovation — just not at the cost of a sound pension.

“If you’re self-employed and you earn so little, and you continue to do so over a long, sustained period of time, when you make too little to be able to save for your own retirement, then you don’t have a good business model,” Westhoff said.

Others disagree.

“Earning a low income has very little to do with being self-employed, it has to do with what industry or branch you work in,” said Wessels.

Wessels and his supporters have a brief respite: mired in the government’s wider discussions about pension reforms, the ministry has yet to draw up the legislation — but that could happen later this year.

Some say the German government is simply coming up with new ways to save its ailing pension system, and that freelancers aren't an important voting bloc.

"I think the bottom line is they’re short of money,” said Giulia Pines Kersthold, the writer. “I would love to see someone just own up to that.”

While some freelancers say they would have to start working under the table or turn to state welfare to bridge the gap, Pines Kersthold, who is married to a German, is now applying to join the Artist’s Social Security Fund, which contributes to pension and health-care costs for some creative industries.

And she is weighing her choices.

“If this happens, my two options are to give up my Berlin dream and take my husband and move to New York City,” she said. “Or to just give up all my work here.”