German health, tax reforms come under fire

3rd July 2006, Comments 0 comments

3 July 2006, BERLIN - German Chancellor Angela Merkel's government came under fire Monday over a new set of reforms of the country's corporate tax system and its creaking health insurance service.

3 July 2006

BERLIN - German Chancellor Angela Merkel's government came under fire Monday over a new set of reforms of the country's corporate tax system and its creaking health insurance service.

The agreement, which was hammered out over a marathon ten-hour meeting stretching into the wee hours Monday, ended a protracted battle in the government over cutting corporate tax rates in Europe's biggest economy and tackling the ballooning health insurance sector deficit.

The health service, which has been hit by the ageing of the German population and recent high unemployment, is tipped to chalk up a shortfall next year of about seven billion euros (nine billion dollars).

"I believe this is a real breakthrough that we have made here," said Merkel after the meeting with her coalition partners in Berlin.

In the build-up to the meeting she insisted that a move to close the health service funding gap with a tax increase was no longer under consideration.

But the reforms were roundly criticised by the nation's opposition and experts with Norbert Walter, the chief economist of Germany's biggest bank, Deutsche Bank who dismissed the package of changes, saying: "That is not a breakthrough."

"There is a life after the football World Cup and thanks to this government it will be expensive for people as never before," said Guido Westerwelle, the chief of small liberal Free Democrats.

Equally scathing was Green Party leader Renate Kuenast: "You can only say: we are being taken for a ride."

The reforms, which include reducing the overall tax burden on German firms from just under 40 per cent to below 30 per cent, are likely to represent the major reforms of Merkel's so-called grand coalition, which came to power last year after an inconclusive national election.

Details of the corporate tax changes, which are expected to be introduced in 2008, are to be released later.

However, Finance Minister Peer Steinbrueck had proposed cutting the corporate tax rate to 12.5 per cent from its current 25 per cent, and reducing Germany company's tax burden to 29.19 per cent from the present level of 38.65 per cent.

Despite unemployment in Europe's biggest economy currently standing at 10.9 per cent in seasonally adjusted terms and the impact high joblessness has had on the ailing health service, the coalition's rather modest labour market reform have been placed on the back burner.

Merkel insisted that marshalling tax revenue would help to reduce Germany's high labour costs, which many economists believe represent a major hurdle to job creation in the nation.

But the President of the Federation of German Employers, Dieter Hundt was far from convinced, saying that the package of healthcare reforms were contrary to the aim of promoting economic growth and jobs through reducing wage costs.

Under the reforms, agreed to by Merkel's conservative political bloc and their Social Democrat Party coalition partner, health insurance contributions paid by workers and employers will rise from the start of next year by around half a percentage point.

In addition, tax revenues will also be used to help shore up the service's financing. Financing the health care costs of children will be gradually introduced from 2008.

The increase in healthcare contributions will also coincide with the introduction of a hefty three percentage point hike in the nation's consumption tax to 19 per cent, which parliament agreed to last month.


Subject: German news

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