Schäuble Increasingly Isolated On Tax Policy

by Ulrika Lomas, Tax-News.com, Brussels

30 June 2011

Germany’s ruling Free Democratic Party (FDP) has called for ‘cabinet discipline’ from Finance Minister Wolfgang Schäuble following his latest sceptical remarks pertaining to tax cuts, outraged that such a key figure obstinately refuses to toe the government’s fiscal line. Fellow members of the Christian Democratic Union (CDU) party and federal state prime ministers are also continuing to oppose government plans.

Despite the fact that government spokesman Steffan Seibert has made absolutely clear that the coalition’s fundamental objective is to reduce the fiscal burden on low- and middle-income earners in Germany in this legislative period, Finance Minister Schäuble has continued to flout the announcement by reiterating his claim that there is currently no scope for substantial tax cuts. Indeed, Schäuble warned of the dangers of arousing excessive expectations, which would subsequently lead to bitter disappointment, referring to the proposed volume of tax cuts of around EUR10bn as completely “unrealistic”.

Clearly incensed by the comments, General Secretary of the FDP Christian Lindner underlined the fact that party leaders have now engaged in talks on the issue of tax cuts and have agreed to implement tax reductions ahead of the next elections. Given that Chancellor Angela Merkel has already issued guidelines for the tax cuts, the FDP has no reason to doubt the Chancellor’s authority, Lindner added, emphasizing that tax cuts will therefore be introduced.

Alluding to the fact that Finance Minister Schäuble has stated that he remains open to the idea of limiting the effects of 'bracket creep' (where tax brackets fail to keep pace with wage inflation, pushing more people into higher tax bands), Lindner urged the minister to come forward with suggestions as to how to curb or to alleviate the phenomenon. The minister must now follow his words with deeds, Lindner insisted.

Seibert recently announced government plans to reduce the fiscal burden on low- and middle-income earners in Germany by 2013, while acknowledging that there are as yet no concrete proposals on the table as regards volume and specific measures, and while insisting that budgetary consolidation remains the top priority. Any tax cuts must be reconciled with this, he added.

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