Merkel's planned tax hikes 'will harm economy'

8th November 2005, Comments 0 comments

8 November 2005, BERLIN - Plans for tax hikes by designated chancellor Angela Merkel and the Social Democrats with whom she plans a grand coalition were criticized Tuesday as a threat to Germany's fragile economic recovery.

8 November 2005

BERLIN - Plans for tax hikes by designated chancellor Angela Merkel and the Social Democrats with whom she plans a grand coalition were criticized Tuesday as a threat to Germany's fragile economic recovery.

Merkel, who has vowed to get Germany's budget deficit down to the 3 per cent of GDP level required in the eurozone by 2007, has apparently chosen tax increases as an important means of doing so.

The incoming government wants to raise value added tax (VAT) to at least 18 per cent and possibly even 20 per cent from the current rate of 16 per cent.

In addition, reports suggest Merkel has approved a new "wealth tax" aimed at Germany's 120,000 richest people.

This would impose a 45 per cent income tax (instead of the current 42 per cent maximum) on singles with an annual income of 250,000 euros (295,000 dollars) and married couples earning over 500,000 euros.

The Federation of Taxpayers said a wealth tax would simply drive people to stash money abroad in Switzerland or at offshore banks.

"It would be a brake on the economy and, in the end, could even lead to less tax revenue," said the federation in a statement.

Germany's BAG retail lobby warned that increasing VAT would have grave consequences for the country's already weak domestic demand.

"Raising VAT in this situation would be a tragedy and would cause even more retail sector bankruptcies," said the lobby, adding that about two million people were employed in Germany's retail sector.

Economists have criticised both raising VAT and the wealth tax because of loopholes used by the rich to avoid paying taxes under Germany's complex tax laws. They also warn the wealth tax is difficult to administer and will only raise 1.2 billion euros a year.

Coalition negotiators for both Merkel and the SPD are confident that a final government accord would be finalised by Friday. The grand coalition deal must then be formally approved by the political parties on November 14.

Merkel - if all goes according to plan - will be formally elected chancellor by the German parliament on November 22.

In a related development, the German parliament on Tuesday again rejected a vice-president for the chamber proposed by the former East German communists.

Left Party/Party of Democratic Socialism (PDS) leader Lothar Bisky failed to gain a simple majority in his fourth bid to become vice- president of the Bundestag.

Many deputies in the chamber objected to Bisky's remaining in a high party office and the fact he was a member of the old East German communist party.

The PDS is entitled to a parliamentary vice-president and it was unclear if Bisky would now withdraw from his bid and allow another member to run.

DPA

Subject: German news

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