Koehler seeks tax cuts and deregulation to tackle crisis

15th March 2005, Comments 0 comments

15 March 2005, BERLIN - German president Horst Koehler called on Tuesday for a major revamping of Germany's tax, regulatory and labour laws aimed at cutting the highest rate of unemployment since 1933.

15 March 2005

BERLIN - German president Horst Koehler called on Tuesday for a major revamping of Germany's tax, regulatory and labour laws aimed at cutting the highest rate of unemployment since 1933.

"We need a political right of way for jobs. What creates and secures employment must be done - and what blocks it must be stopped," said Koehler in a major speech on Germany's jobs misery.

Koehler said that with 5.2 million unemployed, 12.6 percent of the German workforce, there was no time to waste. "We can't afford tactical reform pauses or a zig-zag path due to elections," he added.

President Koehler - a former head of the International Monetary Fund (IMF) who is Germany's mainly ceremonial head of state - welcomed a planned meeting this Thursday between Chancellor Gerhard Schroeder and opposition conservatives aimed at fighting joblessness.

Schroeder is due to make a major speech in parliament also on Thursday outlining new reforms by his centre-left government aimed at promoting growth and jobs.

Koehler, in a speech to business leaders and politicians in Berlin, said the first step should be slashing Germany's legendary over-regulation and bureaucracy.

He blamed both the German federal and regional governments as well as the European Union for decades of simply imposing more and more rules on business.

A medium-sized German company CEO spends 230 hours a year - a full month - just dealing with state directives and demands for statistics, said Koehler.

But others are to blame as well, he stressed.

The public had gotten used to increasing service and "gifts" from the state, said Koehler.

"The modern social welfare system protects against emergencies ... but it cannot guarantee each individual's achieved standard of living," said Koehler.

A change in mentality was thus needed, said the President who complained that in Germany it was sometimes regarded "morally suspicious" to make a profit.

"There were times when nobody talked about globalisation but the VW Beetle was running all over the world," he said looking back at the 1960s economic miracle which lifted Germany from the devastation of World War II to the biggest economic power in Europe.

Koehler said the German unemployment problem remained mainly structural given that the country was living beyond its means with total debt plus expected payments for the social welfare state now at a crushing level of EUR 7.1 trillion.

"That's 330 percent of our annual GDP. Are we really clear about what kind of a burden this will be for our children and grandchildren?" asked Koehler, adding: "Our social welfare system is threatened by collapse."

A further crucial problem is high non-wage costs such as employer contributions to social security as well as unemployment and health insurance payments.

"They have made labour too expensive in Germany so that many people now have hardly a chance of finding a job," said Koehler who has become famed for his straight-talking since becoming president last July.

Koehler blamed both trade unions and employers for gold-plating wage and benefit agreements. This alone was the cause of 50 percent of non-wage costs, he said.

Tax reform was a further vital issue, said Koehler, who warned that Germany's current high corporate taxes were largely avoided by big companies but that small and medium-sized firms - the so-called Mittelstand - were forced to pay the full crushing burden.

The Mittelstand is widely seen as the backbone of Germany's economy with the best prospects for creating new jobs.

Germany's tax system was ranked in last place out of 104 countries by the World Economic Forum in terms of efficiency, he said.

A further key issue was improving education and innovation, said Koehler.

This, he said, was crucial given that Germany's wages are far higher than those of Poland or China.

Koehler warned that German schools were still failing to graduate 9 percent of their students each year.

"Our schools and universities are merely average in international comparisons," he said.

Koehler said that among changes needed were moves away from Germany's centralised education system with more autonomy for schools and universities. More competition among universities for the best students was also needed, he said.


Subject: German news

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