Tax hike for German smokers

Chancellor Schroeder forgets money worries to pose with a student

The price of a packet of cigarettes will rise by about one euro (71 pence) after German politicians agreed on a big tax increase.

The money raised will be used to help pay for the reform of the country's health insurance system which has a big deficit.

Germany's ruling coalition of Social Democrats and Greens said they aimed to put roughly one euro of extra tax on a packet of cigarettes from January next year, raising the price by one-third.

That will bring in about 2.8bn euros a year.

But the move must be approved by both houses of parliament before it can become law.

Cutting labour costs

The extra tax is part of a reform plan aimed at reducing health service costs by 20bn euros.

Other measures include making Germans pay more towards the cost of medicines prescribed by doctors.

"With these measures we will meet our goal of cutting the [health insurance] contribution rate to under 13%," said Greens co-leader Reinhard Buetikofer.

The current average contribution rate is 14.3% of gross wages, paid equally by employers and employees, and is expected to rise to 15% unless the government takes action.

Cutting the contribution rate will help to reduce Germany's high labour costs.