Schroeder wantsown reform majority

17 December 2003

BERLIN – Despite winning opposition backing for his economic reforms Wednesday, German Chancellor Gerhard Schroeder still insists the package of bills pass with his slim majority in parliament’s lower chamber later this week.

Meanwhile, just days before the reforms are to be finally presented to the two houses of parliament, the Finance Ministry said that an error made due initial calculations of the tax cuts included in the package of measures meant that taxpayers could look forward to an additional EUR one billion to spend next year.

Instead of tax cuts totalling more than 7.8 billion as agreed to at the mini-reform summit of Germany’s political leaders earlier this week, the tax reductions will now total EUR 8.9 million, the ministry said.

Final approval of the tax, labour and social welfare reforms is certain on Friday after Schroeder’s Social Democratic (SPD) alliance with the Greens cut a compromise deal with the opposition Christian Democratic alliance (CDU/CSU).

But Schroeder is still demanding his coalition carry the vote in parliament’s lower chamber, the Bundestag, where his left-leaning government has 306 votes, compared with 295 for the opposition.

Although Schroeder has not explicitly threatened to resign if the SPD-Greens bloc fails to muster its majority he has repeatedly done so in the past to rally his troops.

At least four members of the Chancellor’s coalition have already vowed to vote against the reforms due to anger over labour market changes which will a ban on people who are unemployed from refusing to take jobs deemed below their qualifications.

A commentary in the newspaper Die Welt said an own-majority for Schroeder was vital so he could claim to be the father of reforms which have been heavily rewritten by the opposition CDU/CSU which sank the government’s earlier reform bill in the Bundesrat upper house which it controls.

“This chancellor knows the power of symbolism,” said the paper, adding that Schroeder’s loss of the upper house to the opposition and low opinion poll ratings meant his majority in parliament’s lower chamber was his government’s last remaining sheet anchor.

Schroeder has staked his political future on the market-oriented reforms aimed at revitalizing Europe’s biggest economy which is projected to post zero growth this year with unemployment of over 10 percent.

Aside from long-sought labour law liberalisation, the reform seen as most crucial will cut the top marginal income tax rate to 45 percent from the current 48.5 per cent beginning 1 January. More tax cuts are due in 2005.

The government hopes taxpayers will use the tax relief on spend on consumer goods to stimulate sagging domestic demand.

Schroeder had sought a higher cut of EUR 15.6 billion for next year but this was rejected by conservatives because it was to be funded by more borrowing – not government spending cuts.

Boosting borrowing is a major concern given that Germany will overshoot the eurozone budget deficit limit of 3 percent of GDP for a third year in a row in 2004.

In a related development, two opinion polls released Wednesday showed no change to the low standing of Schroeder’s SPD.

An Allensbach poll gave the SPD 25.5 percent, compared to 47.4 percent for the opposition CDU/CSU. A Forsa poll gave Schroeder’s SPD 27 percent and the CDU/CSU 47 percent.