German Chancellor Angela Merkel is facing an embarrassing defeat, unable to convince federal state leaders within her own party to back the government’s agreed tax cut initiatives for January. Recent negotiations with Christian Democratic Union (CDU) heads of state failed to reach a consensus.
Schleswig-Holstein’s Prime Minister, Peter Harry Carstensen remains adamant that the government’s proposed tax relief measures will have dire financial consequences for his state.
Given the already precarious financial situation, Carstensen has threatened to block the government’s plans if compensation for future losses in fiscal revenue is not assured. Indeed, Carstensen has insinuated that he is prepared to resign over the issue.
Without agreement from Schleswig-Holstein, the CDU and the Free Democratic Party (FDP) will not have the necessary majority in the upper house of parliament to adopt the growth acceleration law.
Indeed, unrest within the CDU is growing, as other state leaders have announced their opposition to the government’s tax cut plans. The Prime Ministers of Saarland and Thüringen, Peter Müller and Christine Lieberknecht respectively, have recently rallied in support of Carstensen.
Reacting angrily to the unwelcome uprising, leader of the Christian Social Union (CSU) and Bayern’s Prime Minister, Horst Seehofer has retaliated, emphasizing that the Union must not break its election promise. Everyone in the Union agreed to the proposed new law, he has argued.
From January 2010, the government’s proposed tax cuts aim to reduce the tax burden on both individuals and businesses in Germany by around EUR8.5bn. Fearing significant und unsustainable losses in tax revenue as a result, however, the Federal states are seeking compensation. Schleswig-Holstein is anticipating losses of an estimated EUR70bn.
Until now, Chancellor Merkel has remained firm, adamant that she will not barter politically over the proposed growth acceleration law. German Finance Minister Wolfgang Schäuble has also confirmed that the states are not entitled to compensation, given that they also bear responsibility for determining the country’s policy.
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