The German Finance Ministry is eager to postpone the proposed 2011 tax reforms, thus increasing pressure on Chancellor Angela Merkel to clarify the government’s position.
Rather than press full steam ahead with the implementation of further tax relief initiatives, the Finance Ministry is proposing to agree to certain measures this year, but to then delay entry into force until after 2011.
Justification for this latest proposal is the fact that the resulting losses in revenue – of an estimated EUR20bn – would be better absorbed after 2011 when there is expected to be some improvement in the public finances.
The Finance Ministry intends to present its proposal at the forthcoming coalition leadership meeting, due to be held on January 17. The crisis talks are designed to resolve disagreement between the ruling parties over key issues, such as taxation.
Given the clear – and growing – opposition to the government’s radical reform plans, it now appears increasingly unlikely that the Free Democratic Party (FDP) will be able to implement its core policy in the current legislative period.
Baden-Württemberg’s outgoing Prime Minister Günther Oettinger has already distanced himself from the tax cut proposals of the Liberals, urging the government to pursue a more sober budgetary policy instead. Indeed, given the recent forecasts, Oettinger does not see any scope for the introduction of significant tax cuts in 2011.
German Finance Minister Wolfgang Schäuble has recently expressed his reservations regarding the FDP’s proposed EUR24bn tax cut package. According to Schäuble, the question of whether or not such significant reductions in tax are realistic, very much depends on how the economy has developed by May, and on the extent to which the government is prepared to reduce spending.
From 2011, the government must begin to reduce the record EUR86bn deficit.
A statement regarding the scale of the proposed tax reductions is expected shortly before the key elections in North Rhine-Westphalia on May 9.
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