Germany To Get Watered-Down Tax Cut After Political Deadlock Is Broken
By by Ulrika Lomas, Tax-News.com, Brussels
16 December 2003

Germany is to get a 7.8 billion euro tax cut next year after the embattled Chancellor Gerhard Schroeder and opposition members of parliament managed to reach a compromise deal on the government’s controversial plan to reform the nation’s economy.

However, after marathon negotiations in the mediation committee that lasted into the early hours of Monday morning, Schroeder had to accept a deal that saw his original 15.6 billion euro tax cut proposal slashed by a half. The government will also have to sell its stake in national industries such as Deutsche Telecom and Deutsche Post to placate opposition fears over the mounting public debt.

Though far short of what Schroeder would have liked, the Chancellor appeared to welcome the compromise deal, commenting: “It is really an absolutely respectable result that we can accept and that in current conditions can bring our country further.”

Nevertheless, some fear that the smaller tax cuts will not provide the economy with the much-needed shot in the arm that Schroeder is hoping for. “The tax cuts will have practically no effect on the economy, except for maybe a small psychological effect,” Lothar Hessler, of HSBC Trinkhaus & Burkhardt, told Reuters.

It is thought the tax cuts should be in place in time for January 1 2004, provided both houses can rubber-stamp the legislation this week.

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