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The Week in Germany: Politics July 15, 2005 Conservative platform seeks tax shuffle to boost jobs Germany's conservative opposition leader, Angela Merkel, has unveiled an election platform that promises to ease strict labor market rules and cut unemployment, in part by introducing tax system changes meant to boost jobs.
"There hasn't been such an honest election program for a long time," Merkel said as she presented the 38-page plan in Berlin on Monday, about two months before elections that many expect her center-right Christian Democratic Union (CDU) to win. With unemployment standing at over 11% nationally, Merkel said that Chancellor Gerhard Schroeder had presided over unprecedented joblessness and promised that the conservatives would usher in "a new beginning with reliability and clarity." At the heart of Merkel's bid to oust Schroeder and his center-left Social Democrats is a controversial proposal to hike Germany's sales tax by 2 percentage points, with the new revenues used to pay for cuts in the payroll tax for unemployment insurance. Germany's high non-wage labor costs discourage new hiring by making it more expensive for employers to add jobs, Merkel said, adding: "We have to ask ourselves, what will help us to move forward quickly?" The plan also pledges to loosen strict rules on hiring and firing and to make it easier for companies to opt out of the sector-wide wage agreements that are seen as a hallmark of Germany's traditional social market economy. On foreign policy, the manifesto includes pledges to reinvigorate relations with the United States and to strengthen both the transatlantic NATO alliance and the EU's own military capability. Other proposals include a modest cut in the base corporate tax rate as well as plans to cut the top rate of personal income tax to 39% from 42% and the bottom rate to 12% from 15%. The reductions will be financed by curbing special tax breaks and other allowances.
Not surprisingly, the conservative program, called "Seizing Germany's Opportunities," has drawn harsh criticism from Social Democrats, who launched their own platform last week. (Germany.info reported.) "Under Mrs. Merkel, everything will be more expensive and nothing better," Chancellor Schroeder said. "You can see that in the plan to raise sales tax. That affects families with children and people with small pensions." Business leaders have also delivered a mixed verdict on the plan, with some wary that a sale tax rise could further dent already weak consumer spending. Raising the sales tax "would be a real blow to consumption, a setback to the entire economy," Holger Wenzel, head of the HDE association of 100,000 retailers, told Bloomberg. Others have complained that the plan is too cautious, leaving pensions untouched and remaining vague on plans to introduce a flat-rate health insurance fee. "So as it stands now, there is to be a tax hike at the beginning and not the structural reforms of the labor, health, care and pension insurance," said Ludwig Georg Braun, the head of Germany's influential Chamber of Commerce and Industry. Still others have backed the plan. "If all this is implemented, citizens and businesspeople can regain trust in German economic policy," Juergen Thumann, who leads the Federation of German Industry, told the Associated Press. Current opinion polls show Merkel's CDU and its Bavarian sister party, the Christian Social Union, with a double-digit lead over Schroeder's SPD and its junior coalition partner, the environmentalist Greens, in an election that has yet to be officially declared. President Horst Koehler must decide by July 22 whether to call the early election after Schroeder lost a vote of confidence in parliament just over a week ago. Links:
 Schroeder's
Social Democrats unveil platform (from Germany.info)
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