The German parliament dealt a severe blow to the Chancellor, Dr Helmut Kohl, and his hopes of winning a record fifth term in office next year when it rejected an ambitious plan to reform the country's tax system. The plan was passed by the Bundestag but rejected by the upper house, the Bundesrat, where opposition parties enjoy a majority.
The plan would have cut corporate and personal taxes and simplified complex rules in an effort to boost investment and create jobs in a country where unemployment has reached 11 per cent. It would also have reduced the so-called "solidarity surcharge" imposed following unification to help to rebuild east Germany.
The government and the opposition Social Democrats agreed on only one item: to abolish a tax on business capital viewed by many as a deterrent to investment.
The Finance Minister, Mr Theo Waigel, said the government would send the rest of it back to the committee that rejected it.
"The big tax reform remains on the agenda. We will fight for it. If it does not come about, the SPD would have to take the responsibility," he said.
The SPD argued that the plan was tilted too heavily in favour of big business and high earners and that it did not do enough to alleviate the tax burden on the less well off. With a top income tax rate of 53 per cent and hefty health and social insurance contributions, many Germans take home less than half their gross pay every month.
Business representatives condemned the failure of the tax plan as "a slap in the face for investors" and the government sought to blame the opposition, which it accused of endangering German competitiveness.
"Simply rejecting urgently needed reforms out of electoral calculations sends a worrying signal to investors at home and abroad," the employers' federation said in a statement.
The tax reform was at the centre of Dr Kohl's plan to retain office in next month's elections.
Most commentators believe that the chancellor's hopes of success are slim and his governing coalition is trailing the combined opposition of Social Democrats and Greens by almost 10 percentage points in most opinion polls. Editorial comment: page 17
