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Merkel admits tax cut plan may fail

Doubts grew on Monday over the viability of the new German government's choice to rely on tax cuts alone to boost the ailing economy, with Chancellor Angela Merkel herself admitting the plan might not work.

Merkel admits tax cut plan may fail
Photo: DPA

Under plans for the next four years, finalised on Friday by Merkel’s conservatives and her new pro-business partners, the tax burden on families and workers will be eased by some €24 billion.

Merkel believes the tax breaks will speed up Germany’s recovery from its worst recession since World War II, and that the economic growth that the cuts will trigger will help cover the cost.

But despite Germany’s mammoth and growing debt mountain, the new government has yet to detail any major cuts in spending while Germany’s nascent economic recovery remains fragile.

“We are focusing on growth, because growth is the way out of the crisis,” Merkel said on Monday.

“We made the decision to take a path fully directed towards growth, with no guarantee at all that it will work, but which offers the chance that it will work. By saving, saving, saving I see no chance of success,” she said.

Merkel’s conservative Christian Democrats and their Bavarian sister party the Christian Social Union, were due to rubber-stamp the plans at party meetings on Monday. Their pro-business Free Democrat partners did so on Sunday.

Merkel, 55, Germany’s first chancellor from the former communist East and its first female leader, won a second term in general elections on September 27. She was due to be re-elected formally by MPs on Wednesday.

Andreas Rees, an economist at Unicredit bank, agreed: “It does not make sense to cut public spending already next year when unemployment is expected to soar by at least 500,000.”

Such a policy “would literally have been Russian roulette with possibly devastating effects on growth and employment,” Rees said.

But it is far from certain that what is essentially a gamble will work.

“For the moment, the new government is going with tax cuts for families and employees. It is unclear when it will be firms’ turn,” Klaus Zimmermann, head of the economic institute DIW, told the Berliner Zeitung daily.

“If you are looking for families to boost consumption then one has to ask oneself whether families will actually spend more or whether they will save most of the money,” Zimmermann said.

The tax cuts, as well as increases in spending because of the recession, will also serve to add to Germany’s huge debt mountain, even if they succeed in sparking growth.

“If Germany wants to reduce its public debt level to 60 percent (of output) by 2020… the economy has to grow by 4.5 percent on average each year,” Unicredit’s Rees said. “It goes without saying that this is a mission impossible.”

Germany’s national debt currently stands at around €1.5 trillion, and growing, with the interest payments alone costing the country tens of billions of euros every year.

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POLITICS

Sleep, seaside, potato soup: What will Merkel do next?

 After 16 years in charge of Europe's biggest economy, the first thing Angela Merkel wants to do when she retires from politics is take "a little nap". But what about after that?

Outgoing German Chancellor Angela Merkel briefly closes her eyes and smiles at a 2018 press conference in Berlin.
Outgoing German Chancellor Angela Merkel briefly closes her eyes at a 2018 press conference in Berlin. Aside from plans to take "a little nap" after retiring this week, she hasn't given much away about what she might do next. Tobias SCHWARZ / AFP

The veteran chancellor has been tight-lipped about what she will do after handing over the reins to her successor Olaf Scholz on December 8th.

During her four terms in office, 67-year-old Merkel was often described as the most powerful woman in the world — but she hinted recently that she will not miss being in charge.

“I will understand very quickly that all this is now someone else’s responsibility. And I think I’m going to like that situation a lot,” she said during a trip to Washington this summer.

Famous for her stamina and her ability to remain fresh after all-night meetings, Merkel once said she can store sleep like a camel stores water.

But when asked about her retirement in Washington, she replied: “Maybe I’ll try to read something, then my eyes will start to close because I’m tired, so I’ll take a little nap, and then we’ll see where I show up.”

READ ALSO: ‘Eternal’ chancellor: Germany’s Merkel to hand over power
READ ALSO: The Merkel-Raute: How a hand gesture became a brand

‘See what happens’
First elected as an MP in 1990, just after German reunification, Merkel recently suggested she had never had time to stop and reflect on what else she might like to do.

“I have never had a normal working day and… I have naturally stopped asking myself what interests me most outside politics,” she told an audience during a joint interview with Nigerian writer Chimamanda Ngozi Adichie.

“As I have reached the age of 67, I don’t have an infinite amount of time left. This means that I want to think carefully about what I want to do in the next phase of my life,” she said.

“Do I want to write, do I want to speak, do I want to go hiking, do I want to stay at home, do I want to see the world? I’ve decided to just do nothing to begin with and see what happens.”

Merkel’s predecessors have not stayed quiet for long. Helmut Schmidt, who left the chancellery in 1982, became co-editor of the weekly newspaper Die Zeit and a popular commentator on political life.

Helmut Kohl set up his own consultancy firm and Gerhard Schroeder became a lobbyist, taking a controversial position as chairman of the board of the Russian oil giant Rosneft.

German writer David Safier has imagined a more eccentric future for Merkel, penning a crime novel called Miss Merkel: Mord in der Uckermark  that sees her tempted out of retirement to investigate a mysterious murder.

German Chancellor Angela Merkel forms her trademark hand gesture, the so-called “Merkel-Raute” (known in English as the Merkel rhombus, Merkel diamond or Triangle of Power). (Photo by Tobias SCHWARZ / AFP)
 

Planting vegetables
Merkel may wish to spend more time with her husband Joachim Sauer in Hohenwalde, near Templin in the former East Germany where she grew up, and where she has a holiday home that she retreats to when she’s weary.

Among the leisure activities she may undertake there is vegetable, and especially, potato planting, something that she once told Bunte magazine in an interview in 2013 that she enjoyed doing.

She is also known to be a fan of the volcanic island of D’Ischia, especially the remote seaside village of Sant’Angelo.

Merkel was captured on a smartphone video this week browsing the footwear in a Berlin sportswear store, leading to speculation that she may be planning something active.

Or the former scientist could embark on a speaking tour of the countless universities from Seoul to Tel Aviv that have awarded her honorary doctorates.

Merkel is set to receive a monthly pension of around 15,000 euros ($16,900) in her retirement, according to a calculation by the German Taxpayers’ Association.

But she has never been one for lavish spending, living in a fourth-floor apartment in Berlin and often doing her own grocery shopping.

In 2014, she even took Chinese Premier Li Keqiang to her favourite supermarket in Berlin after a bilateral meeting.

So perhaps she will simply spend some quiet nights in sipping her beloved white wine and whipping up the dish she once declared as her favourite, a “really good potato soup”.

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