States mutiny against Merkel’s tax cut bill

The January 2010 tax cuts planned by Chancellor Angela Merkel's new centre-right coalition faced failure on Friday amid growing resistance from Germany's states. Politicians are now discussing the possibility of pushing the changes back to 2011.

States mutiny against Merkel's tax cut bill
Photo: DPA

Merkel’s conservative Christian Democrats (CDU) and their junior coalition partners the pro-business Free Democrats (FDP) want to adopt a fiscal package worth €8.5 billion including tax cuts and benefits aimed at spurring economic growth. Details include increased child benefits, reduced value-added tax (VAT) in hotels and restaurants, and a reform of business inheritance laws and some cuts in corporate taxes.

But officials from Germany’s 16 federal states – even those led by CDU-FDP coalitions – are increasingly dissatisfied with the package. Their balking threatens to torpedo the vote in the upper house of parliament, the Bundesrat, on December 18.

In a meeting with Merkel on Thursday evening there was talk of extending talks into early next year, which would mean the bill could not take effect on January 1 as planned.

Of the €8.5 billion in tax revenue Germany would miss out on due to the bill, the federal government would shoulder €4.63 billion, the states €2.28 billion and municipalities €1.57 billion.

“We don’t want to be forced by the federal government into taking on debt,” head of the CDU in the state of Saxony Steffen Flath told regional daily Sächsische Zeitung.

But North Rhine-Westphalia’s state premier and CDU member Jürgen Rüttgers told broadcaster WDR5 that the financial burden would be manageable.

Municipal authorities have argued that they are already heavily in debt and would not be able to survive additional pressure.

The plan to reduce VAT for hotels – added to the bill under pressure from the state of Bavaria – is particularly unpopular. It would mean a loss of €1 billion in tax revenues.

Meanwhile economists have also expressed doubts over whether the fiscal package will create economic growth.

Bundesbank board member Thilo Sarrazin told financial daily Handelsblatt on Friday that Merkel should lock herself in a room for two days and think over the issue.

“I am missing any toehold with which we are supposed to approach the problems that really threaten our future,” he told the paper.

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.


Swedish economy unexpectedly shrinks in fourth quarter

Sweden's economy unexpectedly contracted in the fourth quarter of 2022, official figures showed on Monday, as the country battles decades-high inflation.

Swedish economy unexpectedly shrinks in fourth quarter

The Scandinavian country’s gross domestic product shrank 0.6 percent in the last three months of the year, according to the national statistics office Statistics Sweden (SCB).

Analysts had forecast quarter-on-quarter growth of 0.2 percent, according to Bloomberg News.

Sweden’s export-driven economy has shown signs of weakness in recent months.

Statistics Sweden lowered its growth estimate for 2022 from 2.7 percent to 2.4 percent. It expects the economy to go into a recession this year and grow slightly in 2024.

Inflation surged to 12.3 percent in December, a more than 30-year high, while the Swedish krona is at its lowest level ever against the euro.

Europe’s biggest economy, Germany, also unexpectedly shrank in the fourth quarter, official data showed Monday.