German Minister Rules Out Further Tax Hikes

by Ulrika Lomas, Tax-News.com, Brussels

03 June 2003

In a television interview ahead of the German SPD party conference last Sunday, Economy Minister Wolfgang Clement dismissed the notion of further tax increases and talked up the government's proposals aimed at boosting the economy which have attracted fierce criticism from those on the left-wing of the SPD.

Speaking in an interview with ARD television, Clement declared that talk of future tax hikes was "poison for the economy". However, the Economy Minister conceded that the current uncertainty surrounding the government's package of labour market reforms was undermining business confidence in the country.

With the German economy on the rocks, Chancellor Schroeder is pinning his hopes on reforms that will increase the flexibility of the labour market and make it easier for firms to hire and fire employees. With the German budget deficit way above the EU's 3% of GDP threshold, the Chancellor is also hoping to ease the strain on public finances by cutbacks in unemployment benefits and other welfare payments.

The future of these reforms is by no means certain however, as rebels from within the ruling SPD and opposition from the Green Party in the fragile Nord-Rhine Westphalia state coalition threaten to derail the government's plans.

However, Clement's campaign will not have been assisted by the actions of the state premier of Schleswig-Holstein, Heide Simonis, who has been urging fellow state heads to push for increases in VAT (Value Added Tax) and inheritance tax so that cuts in supplemental wage costs can be made.

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