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Koch Warns Against Special Tax Treatment For Key German States

by Ulrika Lomas,, Brussels

15 December 2009

With time of the essence for the German government, as it desperately seeks to gain approval from the federal states for its tax cut initiatives, Hessen’s Prime Minister Roland Koch has now come to the fore, to warn the government that special concessions accorded to individual states will simply not be acceptable.

Despite Schleswig-Holstein’s recent – and seemingly successful – meeting with coalition leaders, Koch is adamant that the tax row is far from over.

He has warned that he is not prepared to accept any special provision drawn up by the government to influence certain states. There will not be two categories of federal states: richer and poorer, he added.

While expressing his hope that an agreement will indeed be reached before the December 18 deadline, Koch nevertheless emphasized the fact that any concessions granted by the government must be applied to all German states.

Schleswig-Holstein’s Prime Minister, Peter Harry Carstensen, announced that his recent meeting with Chancellor Angela Merkel and Free Democratic Party leader Guido Westerwelle had been both “productive and constructive,” although he nevertheless declined to comment on specific details of the talks.

Carstensen has threatened to veto the tax cut initiatives of the government if his demands for compensation for future losses in fiscal revenue arising from the measures are not met.

Confident that the government will find a solution to the dispute, Christian Democratic Union Party Chairman Volker Kauder rejected the idea that the German state of Schleswig-Holstein would receive preferential treatment in exchange for its support.

The government’s new growth acceleration law contains around EUR8.5bn in proposed tax cut initiatives designed to benefit parents, businesses, inheritors and hoteliers. In order for the law to enter into force as planned on January 1, 2010, it must first be adopted in the upper house of parliament on December 18.

Without agreement from Schleswig-Holstein, however, the government will not have the necessary majority to adopt the law.

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