Merkel to loosen Germany's tough firing laws

9th November 2005, Comments 0 comments

9 November 2005, BERLIN - Germany's planned grand coalition under Angela Merkel will loosen the country's tough laws on sacking workers but not eliminate the regulations which trade unions strongly defend and business leaders criticize, sources said Wednesday.

9 November 2005

BERLIN - Germany's planned grand coalition under Angela Merkel will loosen the country's tough laws on sacking workers but not eliminate the regulations which trade unions strongly defend and business leaders criticize, sources said Wednesday.

The future government plans to extend to 24 months the present six-month probation period during which workers can be fired and are not protected by the laws which otherwise making shedding labour difficult and expensive in Germany.

As part of the reform, the present system of allowing limited two- year contracts will be eliminated.

Business leaders have long argued that sacking laws hinder job creation because companies fear they then cannot reduce their workforce when there is a downturn. As a result, German workers put in millions of hours of overtime each year.

But unions say protection against sacking is an elementary right of workers and that getting rid of it would not create any new jobs.

Meanwhile, amid growing alarm over planned tax increases, Merkel is poised to clinch a grand coalition deal with the Social Democrats by the end of this week, senior officials taking part in talks said.

"We want to finish up on Friday - not today," said outgoing Social Democratic (SPD) leader Franz Muentefering who is set to be Merkel's vice-chancellor and labour minister in the planned government with her Christian Democratic alliance (CDU/CSU).

Under an agreed timetable, the CDU, CSU and SPD are supposed to approve the coalition pact at separate party conventions on Monday November 14.

Merkel will then formally be elected by parliament as Germany's first woman leader on November 22.

But in the rush to clinch an agreement, all the parties appear set to break their campaign promises on tax issues.

Germany's biggest selling tabloid Bild ran a front-page story showing Merkel, Muentefering and Bavarian Premier Edmund Stoiber with Pinocchio-style noses and the caption: "Will the tax liars be punished?"

The Berliner Kurier newspaper termed tax moves "Merkel's torture chamber" and published a photo-montage of a black-hooded Merkel holding an axe.

"Economic growth? It will be sabotaged by higher taxes," warned a commentary in the newspaper Die Welt.

Among the likely tax increases are:

- Raising value added tax (VAT) to 19 per cent from the current 16 per cent.

- Raising the income tax rate to 45 per cent from 42 per cent for people who are determined by the government to be "rich." The SPD wants singles earning over 130,000 euros (153,000 dollars) annually and married couples earning 260,000 euros to pay the higher rate.

In addition, the government plans to eliminate a tax break paid to commuters which reduces income tax.

Economists warn the moves will damage already weak domestic demand and could damage Germany's still weak economic recovery.

In a report to the government Wednesday, Germany's leading economic institutes - the so-called Five Wise Men - said they expected GDP to grow by just 1 per cent in 2006, a lower rate than recently downgraded official government projection of 1.2 per cent.

The report warned a VAT increase should only be imposed if the funds are used to cut non-wage labour costs which are widely seen as a cause of Germany's 11 per cent unemployment.

Merkel and the SPD also plan to raise the retirement age 67 years from the present 65 years on a step-by-step basis through 2030. This is aimed at bailing out the already creaking pay-as-you-go state pension system which faces a crisis due to Germany's low birth rate.

DPA

Subject: German news

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