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German Government Obtains Majority For Tax Cut Plans

by Ulrika Lomas, Tax-News.com, Brussels

21 December 2009


At the eleventh hour, and following weeks of intense speculation and political wrangling, the German government has finally secured a majority – albeit a narrow one – for its controversial tax cut proposals in the upper house of parliament. Even key rebel states such as Saxony and Schleswig-Holstein have signaled their approval of the tax cut package.

Following a successful meeting between Christian Democratic Union (CDU) government leaders and representatives of the federal government in Berlin, Baden-Württemberg’s Prime Minister Günther Oettinger confirmed that the federal states have finally reached an agreement, vital if the government’s growth acceleration law is to be adopted in the upper house of parliament.

Schleswig-Holstein’s Prime Minister, Peter Harry Carstensen, announced that it was a good day for Germany. The ongoing battles and opposition have proven very worthwhile, not only for Schleswig-Holstein, but also for other German states, he said. The government has acted responsibly and shown that it is prepared to compromise, he added.

Chief of Staff of the Chancellery, Ronald Pofalla, also welcomed the news, noting that the adoption of the growth acceleration law will be the first significant reform undertaken by Germany’s new coalition government.

From January 1, 2010, the law aims to introduce tax relief measures for families, businesses, heirs and hoteliers of around EUR8.5bn. The measures will, however, result in a shortfall in tax revenue for towns and states of almost EUR4bn.

Carstensen had threatened to veto the law in parliament if his demands for compensation for the states were not met.

Chancellor Angela Merkel has made known recently that she has not yet ruled out the idea of granting a higher proportion of value-added tax revenue to the states by way of compensation, although a reduction in spending on education is thought likely. The government is due to decide on the issue in June 2010.


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