German Opposition Promises Smaller Cut In Corporate Tax

by Ulrika Lomas, Tax-News.com, Brussels

13 July 2005

Germany's main opposition parties have pledged in their election manifesto to cut the rate of corporate tax, although only by around half of the amount originally proposed by Chancellor Gerhard Schroeder earlier in the year.

The Christian Democratic Union and its Bavarian sister party, the Christian Social Union, want to cut the basic rate of corporate tax to 22% from 25% if they succeed in winning the general election, scheduled for September.

"For the time being, there is no room for a net tax reduction given the crisis of public budgets," the CDU/CSU manifesto stated.

Earlier in the year, both the governing SPD and the CDU had attempted to bring about a 6% cut in the headline rate of corporate tax to 19%. However, neither side could agree on how the tax cut should be financed, and the CDU's new proposals reflect the continuing budgetary constraints that the next government will be required to work within.

Other commitments outlined in the manifesto included a 2% increase in value added tax to 18%, raising an additional EUR16 billion (US$19.5 billion) in revenues, which would be spent lowering company and worker contributions to state unemployment insurance to 4.5% from 6.5%.

Mrs Merkel is hoping to avoid raising income tax rates by eliminating a number of tax breaks for the wealthy, such as restricting the amount of losses incurred by special investment funds. She has also pledged to reintroduce capital gains tax on firms selling stakes in other groups.

With the CDU around 15% ahead of Schroeder's Social Democrats in the opinion polls, Mrs Merkel is widely tipped to oust Schroeder and become Germany's next leader following September's elections.

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