German Parties At Sixes And Sevens Over Tax Cuts

by Ulrika Lomas

29 August 2002

Germany's fiscal/electoral quadrille continued yesterday, with Gerhard Schröder adding his voice to that of his Finance Minister Hans Eichel in threatening to increase corporation tax for larger companies to pay for flood relief, whose costs will be particularly high in the country's eastern Lander.

Just days ago, the German chancellor said he would postpone the cut in personal taxation planned for January by one year to release funds for humanitarian aid and rebuilding. But Edmund Stoiber, a credible opponent for Mr Schroeder in next month's general elections, doesn't agree, saying that the government's financing plans put an unfair burden on individuals and small companies.

Ironically, it has been the left-wing Mr Schroeder who has pushed through tax cuts for large corporations, and now finds himself defending his measures against a conservative opponent who is on the side of the workers. Hence the Chancellor's sudden conversion to increasing large business taxation.

"We have no reason to reject this additional source of financing if it would help to gain opposition agreement," Mr Schröder said.

Hans Eichel said he would accept an increase in taxes for quoted companies if it was formally tabled by the opposition. Previously, he had been in favour of an across-the-board corporation tax increase, but it's clear that the opposition won't countenance such a measure. The government has a majority in the lower house of parliament, but needs the opposition's support to get any measure through the upper house.

Hilariously, Mr Schröder maintains that postponing the personal tax cuts will not damage Germany's growth prospects; but then he has to say such things during an election campaign.

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