Coalition talks resolve pension and Turkey issues

8th November 2005, Comments 0 comments

8 November 2005, BERLIN - Germany's retirement age will rise to 67 under a coalition agreement hammered out Monday by designated chancellor Angela Merkel and the Social Democrats aimed at dealing with the huge costs posed by the country's rapidly ageing population.

8 November 2005

BERLIN - Germany's retirement age will rise to 67 under a coalition agreement hammered out Monday by designated chancellor Angela Merkel and the Social Democrats aimed at dealing with the huge costs posed by the country's rapidly ageing population.

The age from which a state pension is paid will increase from the present 65 years to 67 from 2030, said Olaf Scholz who is part of the negotiating team from outgoing Chancellor Gerhard Schroeder's Social Democrats (SPD).

"People who are now aged 50 have nothing to worry about," said Scholz.

Germany has one of the lowest birth rates in Europe and there is concern the already creaking pay-as-you-go state pension system will collapse if it is not subject to radical reform.

Differences over a tricky foreign policy issue - Turkish European Union (E.U.) membership - were also resolved at the talks in Berlin.

Schroeder has strongly backed Ankara's entry to the 25-nation bloc while Merkel, who is a Christian Democrat (CDU), opposed Turkish E.U. membership. Under the coalition agreement, negotiations for Turkish membership will be carried out with an "open outcome".

A Merkel proposal to offer Turkey a sub-membership "privileged partnership" is not included in the agreement, underlined Scholz.

Turkish E.U. membership talks, which began last month, are expected to take up to 15 years.

But there was no final agreement on the most sensitive issue burdening the talks: tax increases.

Limited tax hikes to ease Germany's budget deficit and rising debt are backed by Merkel. Value added tax (VAT) will rise to at least 18 per cent and possibly even 20 per cent from the current rate of 16 per cent.

Media reports suggest Merkel has also approved a new "wealth tax" aimed Germany's 120,000 richest people.

The tax, which has long been demanded by left-wingers in the SPD, would impose a 45 per cent income tax (instead of the current 42 per cent maximum) on singles with an annual income of 250,000 euros (295,000 dollars) and married couples earning over 500,000 euros.

"Those who earn more can and must contribute more," said Franz Muentefering, the outgoing SPD leader who will be labour minister and vice-chancellor in the new government.

Source told Deutsche Presse-Agentur that Muentefering wants to expand the wealth tax by making the 45 per cent rate kick in for singles with annual income of 130,000 euros and married couples earning 260,000 euros.

Economists have criticized both raising VAT and the wealth tax because of there are numerous loopholes used by the rich to avoid paying taxes under Germany's complex tax laws. They also warn the wealth tax will be difficult to administer and will only raise 1.2 billion euros a year.

"This would be the greatest punishment for domestic consumption and would hit the entire economy," warned Hubertus Pellengahr, a spokesman for the German Retail Association.

There are fears that a VAT increase will further dampen Germany's already weak domestic demand for goods and services.

Merkel also faces a revolt in her own party over tax rises. CDU Premier of Lower Saxony state, Christian Wulff, expressed anger over both the wealth tax and the proposed 20 per cent VAT.

"We cannot accept it," said Wulff.

Meanwhile, disagreement remains between Merkel and the SPD over Germany's tough laws limiting the sacking of workers. Merkel wants to loosen the regulations but the Social Democrats are opposed to any such move.

Despite these difference over key issues, coalition negotiators said they were confident the government accord would be finalised by Friday. The grand coalition deal must then be formally approved by the political parties on November 14.

Merkel - if all goes according to plan - will be formally elected chancellor by the German parliament on November 22.

DPA

Subject: German news

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