Merkel’s Swiss Tax Pact Faces Veto as SPD Flexes Pre-Vote Power

German lower-house lawmakers backed a tax treaty with Switzerland that the opposition says it will veto, illustrating Chancellor Angela Merkel’s crimped power to set the national agenda even as she leads in polls before next year’s national elections.

The proposed accord against tax evasion, backed by Merkel and Finance Minister Wolfgang Schaeuble, is fueling a proxy conflict between the Social Democrat-led opposition and Merkel’s coalition parties, which lost their upper-house majority through a succession of state election defeats since 2010. The draft cannot become law until it wins approval in the upper house, where the opposition is refusing to pass it without changes.

“This treaty must take effect on Jan. 1, 2013, or it will fail,” Schaeuble told lawmakers in a speech to the lower house, the Bundestag, in Berlin today. “You won’t get another one in the foreseeable future.” The opposition is rejecting the pact “for reasons of party tactics,” he said.

While Merkel is Germany’s most popular politician and her Christian Democratic Union leads the SPD in all polls, the CDU has lost ground in cities and regions as voters vented anger at euro-area bailouts, incumbents retired and support collapsed for her Free Democratic allies.

Last weekend, Merkel’s party lost the mayor’s office in Daimler AG (DAI)’s home town of Stuttgart it had held since 1974. Merkel campaigns tomorrow in Karlsruhe, the southwestern city where polls suggest the CDU will lose the mayoral race to a candidate backed by the Social Democrats and the Greens.

Green Rise

Karlsruhe is near the Swiss border in Baden-Wuerttemberg, a state that luxury carmakers Daimler and Porsche SE (PAH3) call home. Merkel’s party lost 2011 elections there after 58 years of uninterrupted rule, making Winfried Kretschmann Germany’s first Green state premier. Former Greens national leader Fritz Kuhn won the mayoral race on Oct. 21 in Stuttgart, the state capital.

The German-Swiss tax treaty has spurred conflict between Merkel and her political foes as elections due by the fall of 2013 move closer. State election losses by Merkel’s Christian Democrats since 2010 have left the two main opposition parties, the SPD and Greens, in control of the upper house of parliament.

The deal with Switzerland legalizes tax evasion and “is an obstacle in the fight against tax havens,” Social Democratic lawmaker Joachim Poss told the Bundestag. He said his SPD and the Greens will likely reject the treaty in the upper house, the Bundesrat, where Germany’s states are represented. The chamber will probably vote on the tax treaty on Nov. 23.

Latest Poll

Merkel’s Christian Democratic bloc is ahead nationally with 38 percent support and would need to replace the Free Democrats as coalition partner to have a parliamentary majority, according to a weekly Forsa poll on Oct. 24. The Social Democrats polled 27 percent and the Greens 12 percent. The poll of 2,500 people has a margin of error of as many as 2.5 percentage points.

Those scores, if replicated at the federal election due in September next year, would give neither of the two main blocs enough seats to form a government, leaving a “grand coalition” between Merkel’s party and the SPD as the most likely scenario.

Wrangling over the treaty has centered on provisions for taxing assets previously hidden by Germans in Swiss bank accounts, which the opposition says are too lenient because it would keep client identities secret. Signed by both governments in September 2011, the treaty was changed in April as Schaeuble sought to address opposition demands.

The pact would let Germany reap about 10 billion euros ($13 billion) in retroactive taxes alone, CDU lawmakers Klaus-Peter Flosbach and Olav Gutting said in an Oct. 17 statement, citing a Finance Ministry estimate.

Failure to ratify the treaty in Germany would be a “very bad precedent” and a missed opportunity, Merkel said on Sept. 17. Buying CDs with stolen bank data on German tax cheats, as German state officials have done, “can’t be a solution.”

To contact the reporter on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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