Solbes Questions German Tax Cuts

by Ulrika Lomas, Tax-News.com, London

02 July 2003

Following the German government's decision to bring forward a package of income tax cuts by one year to 2004, European Union Monetary Affairs Commissioner Pedro Solbes has asked the Schroeder administration how it intends to finance the tax cuts, given the worsening state of the country's public finances.

Solbes was openly critical of German fiscal policy in the days leading up to the cabinet's decision to accelerate cuts in both the top and bottom rates of income tax at the weekend. Whilst the German government argues that the economic stimulus factor will make the tax cuts self financing, Solbes has warned that such a measure will not lead to sustainable growth or deficit reductions, and suggested that the Commission will not allow the country's budget deficit to linger above 3% for a third consecutive year.

"An important point is the financing of the planned tax cuts" Solbes observed this week, according to the Berliner Zeitung. "I expect information on how the government wants to achieve the deficit limit of three percent," he added.

Whilst Solbes acknowledges that the tax cuts may play their part in providing a temporary economic boost, he has maintained that it is "crucial" the country's priority should be reforming the labour market and social security system to allow for more sustainable growth.

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