Merkel's VAT plan sparks tension with FDP

12th July 2005, Comments 0 comments

12 July 2005, BERLIN - Just one day after German opposition chancellor- candidate Angela Merkel unveiled her election platform for the nation's early poll, her likely coalition partner, the Free Democrats, stepped up its campaign Tuesday to head off a key part of the manifesto - a hike in VAT.

12 July 2005

BERLIN - Just one day after German opposition chancellor- candidate Angela Merkel unveiled her election platform for the nation's early poll, her likely coalition partner, the Free Democrats, stepped up its campaign Tuesday to head off a key part of the manifesto - a hike in VAT.

Coming in the wake of strong criticism from business and union leaders, key officials from the small liberal Free Democrats (FDP) lashed out at the planned tax increase with FDP chief Guido Westerwelle reaffirming his opposition to the hike and telling Hanover's Neue Presse newspaper Tuesday that it would result in an additional charge on German citizens.

"Therefore we want to prevent going this way," said Westerwelle, who has already indicated that the VAT increase could pose problems in the event that a Merkel victory in the September election paved the way for coalition talks with his party.

While opinion polls show Merkel's Christian Democrats (CDU) and its Bavarian-based associate party, the Christian Social Union (CSU), as likely to garner the most votes in the election, she is likely to need the FDP as a coalition partner to forge a parliamentary majority.

Merkel wants to use revenue generated by her proposed VAT increase from 16 per cent to 18 per cent to help offset Germany's high non- wage labour costs, which economists see as an obstacle to hiring in Europe's biggest economy.

German Chancellor Gerhard Schroeder has brought the election a year forward after a humiliating defeat for his Social Democrat Party (SPD) in a May poll in the state of North Rhine Westphalia, which was once an SPD stronghold.

With German unemployment coming in at 11.6 per cent in May and after a protracted period of sluggish growth, measures to shore up the nation's economy and to create jobs are likely to be at the forefront of the campaign for the election.

Although the VAT would be increased on January 1 next year, a Merkel-led government is not planning to provide income tax relief until the following year as part of another major makeover of Germany's lumbering tax system.

But having long argued the case for lower taxes in Germany, FDP finance spokesman Otto Solms, in an interview with German radio, called on the CDU and CSU to show "economic sense".

"When they want to strive for economic sense, then they should seek out partnership with the FDP," Solms said.

Reflecting comments by some business leaders, FDP Secretary- General Dirk Niebel was equally blunt telling the Financial Times Deutschland daily Tuesday that the CDU-CSU plans "showed a lack of courage in tackling genuine structural reform."

Adding to the tensions, members of Merkel's CDU-CSU bloc hit back at the FDP with CSU chief and Bavarian Premier Edmund Stoiber claiming on German television that the FDP's tax plans were not correctly calculated.

But in an interview with Deutsche Presse-Agentur Tuesday, Niebel moved to dampen down the frictions, saying that the main task was to bring to an end the Schroeder-led coalition and that solutions to differences could be found during coalition talks.

Despite a raft of CDU politicians criticising the FDP's stance, Stoiber, who joined Merkel on Monday at a joint press conference to release the CDU-CSU election manifesto also said he was convinced that the FDP would come around to accepting the VAT hike.

In the meantime, another CSU leader Michael Glos attacked the FDP, saying that "a small partner must beat the drums more strongly, in order to draw attention to themselves and to make themselves bigger".

Quoting from former CSU Bavarian Premier Franz Josef, Glos reminded the FDP: "The dog wags the tail, not the reverse."

DPA

Subject: German news

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