New German government to slash taxes

25th October 2009, Comments 0 comments

Merkel, 55, won a second term in elections on September 27, ditching her previous coalition partners, the centre-left Social Democrats, in favour of the pro-business Free Democrats.

Berlin -- Germany's newly elected government unveiled its plans for the next four years on Saturday, spearheaded by 24 billion euros of tax cuts in spite of the country's mammoth debt mountain.

"It is all geared to creating jobs," Chancellor Angela Merkel said, calling the coalition pact, finalised after three weeks of tough negotiations in the early hours of Saturday, Germany's "answer to the crisis."

"We have agreed a coalition programme showing that we want to advance courageously into the future," she said. "We are aiming for growth, for the creation of an education republic and social cohesion."

"The burden on families has to be lessened, the burden on companies and inheritance tax has to be reformed," Merkel told reporters.

Merkel, 55, won a second term in elections on September 27, ditching her previous coalition partners, the centre-left Social Democrats, in favour of the pro-business Free Democrats (FDP).

The cuts, some of which will take effect from January 1, 2010, come despite the parlous state of Germany's public finances, with the national debt currently standing at around 1.5 trillion euros (2.25 trillion dollars) -- and growing fast.

Germany already spends tens of billions in interest payments on its debts each year, and it will borrow hundreds of billions of euros more over the next few years as the country reels from its worst recession since World War II.

The new government argues that the economic growth that the cuts will trigger will help cover the cost, together with as yet unspecified reductions in public spending.

The FDP, led by Guido Westerwelle, 47, who will be vice-chancellor and foreign minister, had promised voters 35 billion euros worth of tax cuts but Merkel wanted 15 billion euros worth, making this the thorniest issue in the coalition talks.

Westerwelle said that Germany's taxation system would be simplified, and that the new government wanted the country to become "the best in the world" in education and research in order to ensure long-term prosperity.

"Courage for the future -- that is the central theme," he said.

In other areas, agreement came more easily for the two parties, who have a long history of being in coalition, governing together for 28 years since 1949 when then West Germany was founded.

The government wants to reform Germany's creaking health care system by changing the way premiums are set, with the details to be hammered out by a specially created committee. Employee contributions are likely to rise.

After the far-reaching changes by Merkel's SPD predecessor Gerhard Schroeder, chancellor from 1998 to 2005, the FDP failed to convince her party to go further and make it easier for firms to hire and fire workers, however.

They plan to scrap the 2000 decision to abandon nuclear power by around 2020 by extending the life of some reactors, much to the annoyance of environmentalists, who have promised protests if this goes ahead.

In foreign policy, Merkel's conservative CDU/CSU alliance and the FDP want to press for the Afghan government to assume more responsibilities so that Germany's 4,200 troops can come home.

The FDP succeeded in softening somewhat Merkel's position on Turkish membership of the European Union, meaning that the door will remain open, while stressing that Turkish membership is neither automatic nor guaranteed.

In terms of ministerial appointments, wheelchair-bound CDU veteran Wolfgang Schäuble, 67, current interior minister and the former right hand man of ex-chancellor Helmut Kohl, was set to become finance minister.

The aristocratic Karl-Theodor zu Guttenberg, 37, economy minister and Germany's most popular politician, was set to move to defence. Rainer Brüderle, 64, deputy chairman of the FDP moves to the economy.

Thomas de Maizière, 54, Merkel's trusted lieutenant since 2005 as her chief of staff, has been rewarded for his loyalty with the post of interior minister. His main tasks will be tackling the threat of Islamic extremism and fostering better integration of ethnic minorities.

Meanwhile, conservative Guenther Oettinger, 56, currently head of the Baden-Wuerttemberg regional government in southwest Germany, is to be proposed as Germany's member of the European Commission, a CDU party official said.

"Oettinger on Friday accepted the post of commissioner in Brussels," said Volker Kauder, head of the CDU parliamentary group.

"We need a strong personality with knowledge of economic policy, who knows what is important for our country," Kauder added.

Here follows a brief summary of their main policy aims:

TAX: The main sticking point in the coalition talks, the new government wants to implement 24 billion euros (36 billion dollars) worth of tax cuts over the next four years in spite of Germany's debt mountain. The new government argues that the economic growth that the cuts will trigger will help cover the cost, together with as yet unspecified reductions in public spending.

FOREIGN POLICY: Germany wants to speed up the transfer of responsibilities to the Afghan government so that foreign troops, including Germany's 4,200, can leave. It also wants all remaining US nuclear weapons withdrawn from German soil.

EUROPE: The FDP succeeded in softening somewhat Merkel's position on Turkish membership of the European Union, meaning that Germany's official position will stay: Turkey is not yet ready to join, membership is neither automatic nor guaranteed and the EU must be able to absorb it.

ENERGY: The new government wants to effectively scrap the 2000 decision to abandon nuclear power by around 2020 by extending the life of some reactors, keeping nuclear as a "transition energy" until renewables like solar and wind power can produce more. Utility firms' profits from nuclear should go towards developing renewables.

LABOUR MARKET: After the far-reaching changes adopted by Merkel's predecessor Gerhard Schroeder, the FDP failed to convince her party to go further and make it easier for firms to hire and fire workers. Germany's powerful trade unions had warned of mass protests. There will be no universal minimum wage.

HEALTH CARE: The creaking system was another sticking point in the coalition talks, with Merkel resisting demands from the FDP to give the private sector more clout. Changes will be hammered out by a special committee, but the coalition wants to change the way premiums are set. Employer contributions are set to be frozen, however.

AFP/Expatica

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