Sharing the spoils
July 3, 2011
Despite lingering worries over the state of the global economy, Germany's governing coalition government has agreed on cuts to taxes and social security contributions planned to take effect from January 1, 2013.
According to a report in the Bild daily newspaper, leaders from the three coalition parties - Chancellor Angela Merkel's Christian Democrats (CDU), the Free Democrats (FDP) and the Christian Social Union (CSU) - were united over the plan, but have yet to specify the details of the cuts, which would come ahead of elections due later that year.
According to a joint statement made available to the German Press Agency, Merkel, CSU leader Horst Seehofer and FDP head Philipp Rösler want "tax relief for lower and medium incomes and a lessening of fiscal drag."
"Given strong employment figures, we will also reduce the necessary social security contributions in order to ensure all Germans can participate in the upswing," the leaders said, adding that the existing tax brackets that inadvertently negate pay rises would be adjusted.
Debt reduction top priority?
FDP Secretary General Christian Lindner told public television of a "fundamental resolution" that had been reached, and that more details would soon follow. According to media reports, the cuts will be in the single-digit billions.
The tax cuts would represent a show of muscle by the government despite the country going further into debt thanks to the European Union bailout of debt-laden Greece. The proposals had been a source of tension within the coalition, which has said debt reduction remained its top priority.
The German budget for 2011 foresees significantly lower borrowings totaling around 48.4 billion euros ($66 billion), as opposed to 57.5 billion euros envisaged in Finance Minister Wolfgang Schäuble's original proposals.
The opposition Social Democrats (SPD) labeled the proposals shallow, with SPD deputy parliamentary leader Joachim Poss commenting: "This is all about sending Santa Claus to the people shortly before the summer break."
It was expected the planned tax cuts will be put to the German cabinet in Berlin on Wednesday and that further details would be released coming into autumn.
Author: Darren Mara (Reuters, dpa)
Editor: Andreas Illmer