German SPD Party Prepared To Compromise On Tax Cuts

by Ulrika Lomas, Tax-News.com, Brussels

09 January 2009

At the eleventh hour, rather than jeopardize the German government’s much-needed second economic stimulus package, the Coalition Social Democratic Party (SPD), bowing to mounting CDU pressure, has finally announced that it is prepared to concede on tax measures.

For days CDU and SPD Coalition parties have wrangled over precise details of the second rescue package. With the Union pressing for drastic tax cuts to be included, and the SPD vehemently rejecting the demands, the Coalition government looked set to risk a total collapse of the program.

Even earlier this week, SPD chancellor candidate Frank-Walter Steinmeier fiercely dismissed calls for radical tax reductions, referring to the notion of taking money from the state at such a critical time as illogical and irresponsible.

Now, however, SPD Party Chairman Franz Müntefering has plotted a different course for his party, revealing that, for the sake of the country, compromise might be reached.

According to SPD Deputy Chairman Andrea Nahles, a working group has been commissioned to examine the specific tax initiatives put forward by the Union, with a view to ascertaining the resulting cost to the state.

Both sides of the Coalition have now embraced moves to raise the basic tax allowance to EUR8,000, and to consider minimum shifts in the entry-level rate of tax. The SPD remains sceptical, however, about introducing flat rate tax cuts, a measure, which it believes, would not benefit all.

The CDU is continuing to oppose SPD calls for an increase in the top rate of tax.

Following a five-hour meeting on Monday evening, Union party leader Volker Kauder (CDU) and his SPD counterpart Peter Struck disclosed that both parties intend the second stimulus package to total in the region of EUR50bn. The program will be discussed during a special meeting of parliament next Wednesday.

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