German Tax Increases Hit By Wall Of Opposition

by Ulrika Lomas, Tax-News.com, Brussels

21 September 2001

German Finance Minister Hans Eichel took an opportunistic swipe yesterday at the German consumer by tacking some tax increases onto a package of anti-terrorism measures - but if he thought he would get away with it in the midst of general revulsion at the attacks in America last week, he was wrong.

Opposition leaders suggested Mr Eichel may have used the need to finance new anti-terrorist measures as a cover to overcome an already looming budgetary crisis. Angela Merkel, chairman of the opposition Christian Democrats, said the move to raise an additional DM3bn ($1.4bn) was "a completely wrong decision", saying that the government could have found the additional funds by reallocating existing resources.

The federal statistics office calculated that the surprise tax increases would boost inflation by up to 0.4% in 2002, and the liberal Free Democrats called the move to raise taxes on cigarettes by almost 30% and on non-life insurance premiums from 15% to 16% a "dramatic mistake" that would hurt the economy. The party said yesterday that the tobacco tax increase would raise twice the DM2bn the government estimated. and claimed Mr Eichel had been planning tax increases long before the terrorist incidents.

Germany's tobacco industry (needless to say) believes that the cigarette tax increase is 'unworkable'. Industry leaders are trying to arrange a meeting with the minister to persuade him to delay or modify the measure, but officials at the ministry say there is little chance of that. Cigarette companies believe that higher tax will lead to a fall in demand, from 140 million cigarettes to 120 million. Ernst Bruckner, managing director of the cigarette industry association, described the measure as counterproductive.

The new estimates came as opposition politicians joined industry associations in criticising the government's decision to raise levies on tobacco and insurance premiums on the grounds this would harm already faltering growth.

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