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Germany: States Near Solution In Tax Cut Row

by Ulrika Lomas,, Brussels

15 December 2009

As Schleswig-Holstein’s Prime Minister Peter Harry Carstensen threatens to topple the tax cut plans of the German coalition, the latest round of tax talks has once again failed to resolve the ongoing dispute between the government and the states. Although an agreement now seems possible, the precise details have yet to be ironed out during the course of further discussions.

While Carstensen now appears reassured that the government is taking the concerns of the federal states seriously, following his meeting with Chancellor Angela Merkel and Free Democratic Party (FDP) leader Guido Westerwelle, there is still no firm decision in place.

Carstensen is demanding compensation for the estimated EUR70m shortfall in tax revenue arising for his state as a result of the government’s tax cut initiatives, and has threatened to veto the plans in the upper house of parliament on December 18 if his demands are not met.

From January 1, 2010, the German government aims to introduce tax relief measures designed to benefit parents, businesses, inheritors and hoteliers.

Schleswig-Holstein has drawn up a list of proposals aiming to reduce the burden on the federal states, including calls for the government to increase the amount of value-added tax (VAT) revenue allocated to the states, and to postpone both the reduction in VAT accorded to the hotel industry, and amendments to the country’s inheritance tax.

Up until now, the German government has refused to barter with the rebel states. However, with time running out, it now appears that some form of compromise will be inevitable if the rebellion is to be quashed, and the tax cut measures implemented as promised.

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