Merkel Close to Her Tax-Cut Goal in Coalition Talks
German Chancellor Angela Merkel’s new coalition is close to agreeing on her goal of income-tax cuts of about 15 billion euros ($22 billion), according to her allies from the Bavarian Christian Social Union.
Lawmakers from Merkel’s Christian Democratic Union, or CDU, the CSU and the Free Democrats have brokered a compromise on cutting taxes during their talks on forming the next government, Alexander Dobrindt, the CSU’s general secretary, said on ARD television today.
“It looks as if we were about right” with proposed tax relief of 15 billion euros, said Dobrindt. Free Democratic demands for 35 billion euros of tax cuts were “unrealistic expectations,” he said, adding that party leaders will probably announce “the modest results of talks so far” later today.
Merkel and fellow party leaders held a third round of coalition discussions in Berlin, seeking to bridge their differences and formulate policy for the next four years. Scope for tax relief remains a dividing line as government debt soars to a record after the deepest recession in at least 60 years.
“There are differing positions” on taxes, Rainer Bruederle, Free Democratic economy spokesman, told reporters. “It’d be a miracle if we agreed after only a few days” of talks.
Hartz IV Changes
Lawmakers agreed during a morning session to triple the amount of savings and valuables that recipients of Hartz IV welfare can hold before their benefits are affected, as well as raise the ceiling for what they can earn, said Andreas Pinkwart, deputy head of the Free Democrats. The changes will cost 300 million euros, according to CSU leader Horst Seehofer.
“We’ll get there, you’ll see,” Seehofer, who is also the prime minister of Bavaria, said of the outstanding differences on tax issues. “There will be more net pay from gross pay.”
Merkel has suggested that far-reaching changes in economic and financial policy may not be on the agenda after she won re- election on Sept. 27. Some decisions taken together with the Social Democratic Party in her outgoing “grand coalition” government won’t be reversed, Merkel said, as she pledged to remain the “chancellor of all Germans.”
The FDP led by Guido Westerwelle aims to replace progressive taxation of incomes with just three rates: 10 percent, 25 percent and 35 percent. The current top rate is 45 percent.
Fundamental Overhaul
Cutting taxes without building up too much debt, is “the right thing to do economically and politically,” Thomas de Maiziere, Merkel’s chief of staff, told reporters before a final round of negotiations in the working group on finance, also meeting in Berlin.
“We’re unlikely to reach a final agreement today on the overall amount of tax cuts,” de Maiziere said. “That will come at the end of negotiations and depends on the other working groups’ spending proposals.”
Party leaders will meet again for a weekend session on Oct. 16-18 to thrash out remaining differences. Ronald Pofalla, the CDU general secretary, said the coalition talks may last into next week. Merkel has said she wants her new government to be in place by Nov. 9, the 20th anniversary of the fall of the Berlin Wall.
“We’re making good progress and we’ll deliver what we promised before the election,” Westerwelle told reporters.
Fundamental Overhaul
Steffen Kampeter, one of the CDU’s negotiators, rejected a report in the Financial Times Deutschland newspaper that CDU and CSU negotiators have accepted the Free Democrat proposal and the coalition is preparing a fundamental tax overhaul.
While the FDP’s three-rate tax model is under negotiation, the union parties have made no “concessions” on that matter, he said by phone.
The government expects the economy to shrink by between 4.5 percent and 5.2 percent this year, Pofalla said on Oct. 12. That’s less than the 6 percent forecast in April, potentially giving more scope for lowering taxes. The government has brought forward its autumn forecast by a week to Oct. 16.
“The federal budget situation isn’t easy given the financial and economic crisis, we all know that,” Volker Kauder, parliamentary head of Merkel’s Christian Democrats, told reporters. “But we’re going to get there.”
Filed under: finance by Guru