Germany has passed a bill to up the tax rate for the wealthiest earners, after approval in the country’s parliament.The new highest income tax rate will hit 45%, up from 42%, for the biggest earners - those whose taxable income reaches 250,000 euros (£172,000).

The bill, which was passed in the upper houses of parliament, will be effective from 1 January 2007.

The move is aimed at raising 18bn euros from 2007 to 2010 and is part of wider plans to cut Germany’s deficit.

Germany has regularly failed to meet EU targets for deficit levels.

Family-owned firms will not be affected by the new law and neither will self-employed individuals, such as doctors or lawyers.

The level of savings that will be exempt from tax will also be reduced.

January will also see VAT (value-added tax), which is paid for by consumers, increase from 16% to 19%.

Stronger economy

Also on Friday, Germany’s economy ministry released better-than-expected preliminary industrial production data for May.

The country’s industrial production was 1.5% higher in May month-on-month, indicating a stronger economy.

“The figures are fairly strong, a positive surprise,” said Dirk Schumacher, an economist with Goldman Sachs.

The figures showed that manufacturers’ output was up 1.5% in May from April, while the construction sector saw even bigger rises, up 3.2%.