Germany's upper house of parliament, the Bundesrat, approved the government's plan to raise value-added-tax (VAT) that comes into effect in January 2007.

The grand-coalition government, led by Chancellor Angela Merkel, decided last year to raise the VAT from the current 16 percent to 19 percent next year.

The measure, which has been opposed by business groups arguing that it will dampen recovering domestic demand and hurt the economy, was approved by the lower house Bundestag earlier this year.

Merkel's government insists the money is needed to cut the budget deficit, which is over 3 percent for recent years, a limit set by the European Union for the eurozone.

Under the plan, a third of the earnings will be used to cut payroll taxes paid by employers to reduce high non-wage labor costs.

Source: Xinhua