Industry Chiefs Urge Schroeder To Cut Taxes

by Ulrika Lomas, Tax-News.com, Brussels

11 March 2003

With German Chancellor Gerhard Schroeder due to make a keynote speech on the economy later this week, several powerful German industry chiefs have been pushing for further tax reform to help stimulate business and jobs as the country teeters on the brink of recession.

However, with more gloom predicted for the German economy, Shroeder faces the unenviable task of trying to grapple with a stubborn fiscal deficit that many think will breach the 3% GDP level stipulated by the EU Growth and Stability pact. Economic growth was a paltry 0.2% in 2002, and the economy is expected to fare little better in the coming year. Industrial production numbers are expected to show a year on year decline of 0.5%, with factory order numbers likely down 0.6% since January last year.

Bernd Pischetsrieder, head of Volkswagen, summarised the feeling of many German industrialists, telling Shroeder in the Welt am Sonntag newspaper: "I want clear answers - how they plan to reduce the burden on the social welfare system and what the tax situation is going to look like." He added: "We have a terrible problem with sentiment in Germany. That is linked to a range of unexplained structural problems. Politicians have to make clear decisions."

Emphasising the fact that Schroeder needs to take a fresh look at how Germany is to deal with fiscal policy, Ruediger Pohl, head of influential economic think tank, IWH said in the Mitteldeutsche Zeitung: "Germany's economy is suffering. This is more than just an economic low. Economic programs, such as debt funded state spending, don't help poor growth."

Sounding a somewhat more optimistic note, Siemens CEO Heinrich von Pierer revealed that he expects that Shroeder will deliver what Germany needs in his speech, though remained firmly in the camp of reform. "I expect the Chancellor will present himself as a true chancellor of reform," he told Welt am Sonntag. "We have to make it clear that economic strength depends on our ability to innovate in this country. The government's statement must act as a signal for a new departure. It has to banish this downbeat sentiment," he added.

Hans-Joachim Koerber of the retail group Metro stressed how important tax reform is for Germany warning "we can't wait any longer for these badly needed reforms. However, by reform, I don't mean playing around with existing structures. We've waited too long for this operation. The measures must be put in place quickly. They must be decisive, they must be effective and in some places they are going to hurt" Koerber told Welt am Sonntag.

Whether the German government will heed the warnings of these influential figures remains to be seen. In an attempt to bring its budget deficit under the 3% ceiling the German government has been forced to introduce a raft of unpopular tax increases in recent times, including increases to fuel and energy taxes, higher pension contributions for companies and employees, VAT hikes on some products to the full 16%, and the reduction of tax breaks for homeowners. However, Economy and Labour Minister Wolfgang Clement pledged in January that tax hikes are not on the agenda, stating: 'The main goal of my economic policy is to safeguard growth and employment. Therefore I am committed to an economic policy which rules out further burdens for companies."

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