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Merkel Party Floats Higher Taxes on Rich in Coalition Ally Bid

German Chancellor Angela Merkel
German Chancellor Angela Merkel needs an ally to govern, even after winning elections on Sept. 22 with the highest voter share since Helmut Kohl in 1990. Photographer: Krisztian Bocsi/Bloomberg

Sept. 25 (Bloomberg) -- Chancellor Angela Merkel’s party signaled it’s ready to raise taxes on high earners as she seeks talks with opposition Social Democrats to secure a third term.

Finance Minister Wolfgang Schaeuble declined in a newspaper interview to rule out higher taxes. Norbert Barthle, a lawmaker with Merkel’s Christian Democratic Union, said he would back a higher tax rate for incomes of more than 53,000 euros ($71,560) to fund relief for lower earners without increasing Germans’ total income-tax burden.

Merkel needs an ally to govern, even after winning elections on Sept. 22 with the highest voter share since Helmut Kohl in 1990. The opposition SPD and Greens, her two potential junior partners, campaigned on raising taxes on the rich, which Merkel said she opposed.

“We need to see how the talks go,” Schaeuble was cited as saying by the weekly Die Zeit when asked whether he ruled out tax increases, according to an interview published today. He said it’s “my personal opinion that the state doesn’t need additional revenue sources.”

Jockeying for a share of power is under way after the Free Democratic Party, Merkel’s second-term partner, dropped out of parliament and the Christian Democrats fell five seats short of the absolute majority needed to govern alone. The Social Democrats, who finished second, are holding out as they debate the merits of helping Merkel govern or staying in opposition in what may be attempts to extract concessions on policy.

“Ninety percent of my state’s party members are against a grand coalition,” Hannelore Kraft, the SPD premier of North Rhine-Westphalia, Germany’s most populous state, was cited as telling party members by Der Spiegel magazine. “It’s not a disgrace for us to go into the opposition.”

No Alternative

Yet an SPD official in Berlin said the party hardly has any alternative to linking up with Merkel and that holding new elections wouldn’t help the Social Democrats. The official, speaking on the condition of anonymity because he wasn’t authorized to talk to reporters, said the main difficulty is grass roots SPD opposition to a grand coalition.

The euro rose 0.3 percent to $1.3511 at 5:45 p.m. in Berlin as the derivatives market shows the most confidence in the joint currency since before the financial crisis. Germany’s DAX Index of 30 leading stocks fell 0.1 percent to 8,660.24.

Talks between Merkel and the SPD could take time. In 2005, it took 65 days to swear in their grand coalition, a record in post-reunification Germany. Two-hundred members representing the party’s base will deliberate the SPD’s strategy on Sept. 27.

‘Smart Game’

“The SPD will come around to a grand coalition,” Jan Techau, Carnegie Europe’s Brussels office director said in a phone interview. “They want to drive up the price of doing a deal with Merkel and are playing a tactically smart game by playing hard to get.”

Merkel’s other option, an alliance with the Greens, was rejected as unstable by Katrin Goering-Eckardt, a Greens leader in parliament and by the CDU’s Bavaria-based Christian Social Union affiliate.

Taxes, a topic of dispute during the campaign, are a potential area of deal-making in coalition talks. While the Greens and the SPD made tax increases part of calls for social justice, Merkel said they would put Europe’s biggest economy at risk. “That is a path the Union will not take,” Merkel told a CDU rally in Berlin a day before the election.

Barthle, the CDU’s budget spokesman in parliament, said he “could imagine” an increase at “the upper end” of the tax-bracket scale, the Rheinische Post newspaper quoted him as saying in an interview. Germany’s tax rate at 53,000 euros is 42 percent, rising to 45 percent from 250,000 euros.

Ask President

Merkel will probably ask German President Joachim Gauck to let her keep governing with her current cabinet if a coalition isn’t in place when the newly elected lower house, or Bundestag, meets for the first time on Oct. 22, according to a CDU official who spoke on condition of anonymity because the party’s deliberations are private.

Bild, Germany’s most-read daily newspaper, speculated in a full-page spread on a possible coalition of the two biggest parties with Merkel as chancellor, Schaeuble staying on as finance minister and Social Democratic opposition leader Frank-Walter Steinmeier as foreign minister. Steinmeier served as foreign minister in Merkel’s first government, a grand coalition, from 2005 to 2009.

Markus Ferber, head of the CSU’s group in the European Parliament, said a tie-up of the two biggest factions “offers the best chances of steering Germany through the troubled waters we’re now in.”

“Don’t worry that things are looking rather complicated right now,” he said at a conference in Brussels today. “It was more complicated eight years ago and we ended up with a reasonable outcome.”

To contact the reporters on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net; Rainer Buergin in Berlin at rbuergin1@bloomberg.net

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

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