Merkel rules out tax cuts to revive economy

25th November 2005, Comments 0 comments

25 November 2005, BERLIN - German Chancellor Angela Merkel has ruled out tax cuts in the near future, saying that the German economy is in worse shape than she expected, in an interview published in the mass- circulation Bild newspaper Friday.

25 November 2005

BERLIN - German Chancellor Angela Merkel has ruled out tax cuts in the near future, saying that the German economy is in worse shape than she expected, in an interview published in the mass- circulation Bild newspaper Friday.

The Sueddeutsche Zeitung newspaper simultaneously published a report based on an internal government document claiming that privatizations to the value of 54 billion euros would be undertaken by 2009 and that the number of state employees would be cut by 8,000.

"We simply do not have the room for manoeuvre to cut taxes," said Merkel, whose Christian Democrats had promised to cut taxes in the campaign leading up to the September 18 elections.

Merkel acknowledged the turnaround. "That is correct. But we have had to acknowledge that the financial position is more of a nightmare than we had believed," she said.

Bild pointed out to the chancellor that her grand coalition government of the traditional foes, the Christian Democrats and Social Democrats, had hiked value-added tax by 3 percentage points, more than either had advocated in their respective campaigns.

"Cleaning up our finances is a moral task with regard to our children and grandchildren, whom we cannot burden with ever greater debts," Merkel responded.

In its first full session since being sworn in, the cabinet moved Wednesday to close tax loopholes.

The government has committed itself to cutting Christmas bonuses to state employees and to reducing subsidies to commuters. The proposed measures have drawn angry responses from those affected.

The Sueddeutsche said it had had sight of a government list of cuts regarding privatizations and cuts to state employees.

The left-right coalition would delay some privatizations planned for next year, raising 20 billion euros rather than the 33 billion planned by the last government, it said.

This would lead to a rise in the national debt to 41 billion euros, but a rapid decline thereafter.

In 2007, 19 billion euros would be raised, by selling stakes in the previously state-owned telecommunications and postal sectors and by property sales.

Over the years 2008 and 2009, the government planned to sell what the paper called "table silver" to the value of 15 billion euros.

Savings and tax raises were expected to bring in 19 billion euros in 2007, it said.

The Sueddeutsche said the central bank, the Bundesbank, would be expected to transfer an additional 1.5 billion euros annually from its profits to the state, apart from the proceeds from possible sales of bullion stocks.

State employees, already facing cuts to their Christmas bonuses, would suffer job losses as well, the left-liberal daily said.

Some 8,000 jobs, equivalent to 2.5 per cent, would go by 2010.

It added that the government would have difficulty conforming with the constitutional requirement to keep new debt below or equal to investment.

New borrowings would amount to 21.9 billion euros in 2007, rising to 21.5 billion in 2008, before falling to 19.8 billion in 2009 when the four-year term in office comes to an end, the Sueddeutsche said.

The paper said income from a new wealth tax, agreed by both coalition parties, were not included in the figures.

DPA

Subject: German news

0 Comments To This Article