Merkel cabinet agrees to health charge hike

12th July 2006, Comments 0 comments

12 July 2006, BERLIN - German Chancellor Angela Merkel's cabinet signed off Wednesday on controversial reform plans aimed at shoring up the nation's creaking healthcare system and cutting corporate tax rates.

12 July 2006

BERLIN - German Chancellor Angela Merkel's cabinet signed off Wednesday on controversial reform plans aimed at shoring up the nation's creaking healthcare system and cutting corporate tax rates.

But cabinet's approval of the two reforms came against the backdrop of a new public opinion poll showing support for Merkel's conservative political bloc plunging to its lowest level since November last year.

In particular, Merkel's plan to hike healthcare charges by 0.5 per cent from next year to help finance the deficit-hit health service have angered voters and exposed cracks in her grand coalition government.

The health service, costing an annual 144 billion euros (183 billion dollars), has been hit by the ageing of the German population and recent high unemployment, is tipped to chalk up a shortfall next year of about 7 billion euros.

Under the company tax changes, corporate tax rates are to be scaled back from a nominal 38.65 per cent to 29.16 per cent from the start of 2008.

Both the tax and healthcare reforms are expected to be presented to parliament later in the year.

Outlining the details of the new corporate tax plan, Finance Minister Peer Steinbrueck said the new company tax scales would make Germany a more attractive place to invest and boost the nation's international competitiveness.

However, German industry reacted lukewarmly to the tax proposals.

While the nation's powerful business federations welcomed the government's plan to cut corporate rates, they criticized the additional costs on many companies that would result from the tax reform move.

Releasing a joint statement by Germany's eight industry associations, the chief of the nation's federation of industry, Juergen Thumann said it was a paradox that the tax burden would increase during the investment phase.

The tax changes will cost the government over the medium term 5 billion euros a year.

In a bid to head off the flight of capital out of the nation, Berlin is also planning to introduce a flat capital gains tax from 2008. At present, capital gains are subject to personal income tax rates.

In addition, tax revenues will also be used to help shore up the service's financing. Financing the health care costs of children will be gradually introduced from 2008.

At the same time, the increase in healthcare charges have come under fire from both industry analysts and political leaders for failing to address the problems caused by the ageing of the German population.

The increase will coincide with the introduction of a deeply unpopular 3-percentage-point increase in the nation's consumption tax to 19 per cent, which parliament agreed to last month.

The rise in value-added tax has been attacked by economists as placing at risk the nation's economic recovery from a protracted period of stagnation.

But coming in the wake of the debate over the government's plan for the healthcare service, Wednesday's opinion poll showed 58 per cent of those surveyed believing that Merkel's government was doing a bad job.

The poll, which was drawn up by the Forsa group for Germany's weekly Stern found that 75 per cent of those surveyed did not believe the Merkel-led government would be successful in solving the nation's problems.

At the same time, it showed support for Merkel's Christian Democrats and its associate Bavarian party, the Christian Social Union, dropping one percentage point to 32 per cent.

The poll showed support for Merkel's coalition partners, the Social Democrats, remaining stuck at last week's level of 28 per cent.

In the meantime, the small liberal opposition party, the Free Democrats, profited from the growing disillusionment with the Merkel coalition. Its support rose 1 percentage point to 14 per cent.

The environmental Greens and the Left Party each remained at 10 per cent, the Stern poll showed.


Subject: German news

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