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Germany must ask high earners to help with energy relief - economic council

FILE PHOTO: Facade lighting of landmarks reduced to save energy in Berlin, Germany

BERLIN (Reuters) -Germany must tighten its energy-relief measures in the face of soaring inflation, ensuring only households and businesses that need help are on the receiving end while asking high earners to shoulder more of the burden, a panel of economic advisers said.

The current measures "relieve too much", Monika Schnitzer, one of the five advisers said on Wednesday, pointing out that high earners also benefited from a fuel tax cut and a planned gas price brake.

That increases government debt more than necessary as well as stoking inflation, she added at a news conference.

The panel suggested in its annual report raising the top income tax rate or imposing an energy solidarity tax on high earners to help the government fund relief measures for those who need them.

"As long as the relief measures are effective, the burden should be placed on those who can afford it," said Schnitzer.

German Finance Minister Christian Lindner said the government would carefully examine the panel's report but he rejected calls for higher taxes.

"This is not the time to cause further economic uncertainty," he told reporters.

The advisers were also critical of plans by Lindner to reduce so-called "cold progression", under which income tax brackets are not adjusted for inflation, in light of the current energy crisis.

While compensating for "cold progression" was necessary from a tax system point of view, said the panel's Achim Truger, it should be postponed, as the current focus is to provide targeted relief for lower and middle income groups, and avoid over-stretching the public budget.

The panel expects inflation to hit 8% this year, in line with the latest government forecast. For next year, they foresee 7.4%, versus the government's 7.0%.

It cited a robust labour market and a boost from the relief measures, especially a gas price brake, in its slightly less pessimistic outlook for the German economy, predicting 1.7% growth this year and a dip of 0.2% next year.

The latest government forecast sees 1.4% growth this year and a 0.4% contraction next year.

High inflation dampens economic growth and can adversely affect companies' financing and investment decisions, the panel noted, adding that it was crucial for the European Central Bank to continue acting resolutely on rate hike decisions.

"The trick is to raise interest rates with a sense of proportion in order to fight inflation without causing an excessive slump in the economy," said Ulrike Malmendier, one of the panel members.

Additionally, expanding and diversifying energy supply while encouraging consumers to reduce usage are essential, it said.

(Reporting by Miranda Murray;Editing by Madeline Chambers and Emelia Sithole-Matarise)