VAT could rise as high as 20 percent, Platzeck warns

4th November 2005, Comments 0 comments

4 November 2005, BERLIN - Massive budget deficits could force a bigger than expected increase of German sales tax, the designated leader of the Social Democratic Party warned Friday.

4 November 2005

BERLIN - Massive budget deficits could force a bigger than expected increase of German sales tax, the designated leader of the Social Democratic Party warned Friday.

Under a deal between incoming chancellor Angela Merkel's Christian Democrats (CDU/CSU) and the Social Democrats (SPD) who plan a grand coalition, German valued added tax is set to increase from the present 16 per cent to 18 per cent.

But with worsening deficits, Matthias Platzeck, who is due to be elected leader of the SPD, said this might not be enough.

Asked if he would seek to raise VAT to 20 per cent, Platzeck told N24 TV: "I cannot rule out anything at the moment."

The problem is that working groups hammering out the coalition pact have agreed extra spending which would yield a 70 billion euro (84 billion dollar) federal deficit next year.

At present the government is projecting a 35 billion euro deficit in 2006.

"There are going to have to be very tough cuts," said Platzeck.

The SPD had initially rejected any VAT increase after Merkel ran for election with the unpopular pledge to increase the tax in order to fund reducing non-wage labour costs in a bid to create jobs.

Every percentage point that VAT is raised means about 8 billion euros of annual increased revenue for the state.

Germany is poised to overshoot the eurozone budget deficit limit of 3 per cent of GDP for the fourth year in a row in 2005 and analysts predict a further violation of the rule in 2006.

Merkel, in a speech to business leaders on Thursday, pledged to get German spending under control and bring the deficit under 3 per cent by 2007.

Outgoing Chancellor Gerhard Schroeder said Thursday he expects a coalition deal on schedule. He predicted Merkel will be formally elected as Germany's head of government as planned on November 22.

DPA

Subject: German news

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