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Germany's Opposition Abandon Tax Rise Ultimatum

by Ulrika Lomas,, Brussels

10 October 2013

Perhaps sensing the futility in their demands, Germany's main Opposition parties, the Social Democrats (SPD) and the Green Party, have moved away from their ultimatum that tax rises must be included in any future coalition agreement with German Chancellor Angela Merkel and her newly elected Christian Democratic Union (CDU) party.

Indeed, while insisting that tax rises must not be an end in themselves, SPD Chairman Sigmar Gabriel nevertheless warned that the CDU must put forward alternative proposals to secure financing for future investment in education, infrastructure, and towns and communes in Germany, without recourse to greater debt.

Echoing this stance, the Green Party's Kerstin Andreae made clear that tax rises are not compulsory, emphasizing that the party would welcome other measures aimed at financing the energy transition and vital infrastructure projects. The Green Party will not agree to any measures that might increase state debt as a result, however, Andreae said.

These latest concessions will come as a huge relief to Chancellor Merkel as the coalition negotiations continue, especially given the tough stance adopted by her own party. Firmly ruling out the idea of tax rises, the CDU's General Secretary Hermann Gröhe underscored that increasing the fiscal burden is simply the wrong path. German Finance Minister Wolfgang Schäuble (CDU) has steadfastly maintained his opposition to the idea of tax rises, pointing out that the state must make do with the money it has. Bavaria's Prime Minister and leader of the CDU's sister party, the Christian Social Union (CSU), Horst Seehofer recently reiterated his pledge that there will not be tax rises with his party.

There are, however, alternatives to wealth-related taxes that could be explored. The SPD champions the idea of a Europe-wide Financial Transactions Tax (FTT) as a means with which to generate much-needed additional fiscal revenue for the state. Although the idea of a FTT only currently appears feasible within the framework of enhanced cooperation, Chancellor Merkel could be persuaded to spearhead a greater push for the levy at European level.

Another idea currently being mooted is the possibility of abolishing certain expensive and controversial tax breaks, most notably the value-added tax break (VAT) currently benefiting the hotel industry, and the tax shelter for agricultural diesel and aviation fuel.

TAGS: Finance | tax | investment | value added tax (VAT) | energy | aviation | tobin tax | education | Germany | tax breaks | individual income tax | European Union (EU) | Europe | Other | Tax

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