CHANCELLOR ANGELA Merkel’s future junior coalition partner, the Free Democrats (FDP), has accused the German leader of blocking their demand for radical tax cuts and an overhaul of the tax system.
Two weeks after winning the general election, coalition talks in Berlin have achieved only modest progress amid continued disagreement on tax reform.
The pro-business FDP polled a record 15 per cent in the September 27th election with a proposal to stimulate the economy with a simplified tax system and cuts costing €35 billion.
Any lost tax revenue can, the party suggests, be clawed back by reducing long-standing public subsidies, such as tax-breaks for commuters.
Their ambitions were given a boost by a report by leading economists yesterday suggesting that Germany has cleared the worst of its recession and is heading for recovery.
But Chancellor Merkel and her Christian Democrats (CDU) support debt-financed tax relief of just €15 billion. Anything else is fiscally irresponsible, they claim, pointing to the record €86 billion Germany will have to borrow next year to cover its budget deficit.
“The federal budget situation isn’t an easy one considering the financial and economic crisis, but we’re going to get there,” said CDU parliamentary head Volker Kauder.
An incensed FDP has threatened to walk away from the table rather than accept that and, as one official put it, “face accusations of voter fraud”.
“We will not sign a coalition agreement at any price,” said Dr Volker Wissing, FDP finance spokesman. “We want a new start, not more of the same, and stand by our demands: substantial tax reform and perceptible tax relief.” In and out of talks, FDP negotiators complain that the CDU is still mentally bound to the compromise years of the grand coalition with the Social Democrats, and Dr Merkel’s go-slow strategy of “small political steps”.
Meanwhile the FDP, fresh from a decade in opposition, is bubbling with confidence after last month’s record result, due in a large part to a mass defection to its ranks of conservative CDU voters.
There is support, too, for the FDP’s tax demands among the CDU’s influential pro-business wing, anxious to reassert itself after being sidelined in the grand coalition.
With crunch tax talks scheduled for today, coalition negotiators have reached agreement on other points.
The new government will, as expected, reverse plans to close down nuclear plants by 2020 and plan to triple the value of savings that social welfare recipients can retain while claiming benefit.
The new government is also expected to agree to review German state holdings, although outright sales of remaining stakes in former telephone and postal monopolies are unlikely in the current economic climate.
A final coalition agreement is expected by Friday week, with the new government expected to take office on November 9th, the 20th anniversary of the fall of the Berlin Wall.