Merkel’s Ruling Bloc Dangles Tax Cuts After 2017 Election

  • Business lobby in Merkel’s CDU proposes $33 billion in relief
  • Schaeuble says tax revenue as share of GDP should not increase

German Chancellor Angela Merkel’s ruling bloc is dangling the possibility of tax cuts in the next legislative period in an opening volley of the 2017 federal election campaign.

There’s “certain leeway” for lower taxes after next year, Finance Ministry spokesman Juerg Weissgerber told reporters on Monday in Berlin, citing earlier comments by Finance Minister Wolfgang Schaeuble, who has said that tax revenue as a share of gross domestic product shouldn’t rise further.

The next government should decrease the tax load on consumers by around 30 billion euros ($33.2 billion) over several years, the MIT lobby for medium-sized businesses in Merkel’s Christian Democratic Union-led parliamentary group said Monday. The changes should be structured in a way that benefits average wage earners and families, the organization said.

Tax cuts would put Germany, which is running a budget surplus, less at odds with other industrialized economies, which are shifting away from budget rigor in favor of deeper debt to bring about higher-quality jobs and fuel bigger investment. There was consensus at the last meeting of the Group of 20 nations in July that more needs to be done to tackle inequality and the backlash against globalization, according to International Monetary Fund Managing Director Christine Lagarde.

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Holding out the prospect of tax cuts may also help Merkel win back some of the support she’s lost since the height of the refugee crisis. The chancellor’s approval rating slumped 12 percentage points to 47 percent in July, according to an Infratest dimap poll published last week. Her junior coalition partner, the Social Democratic Party, has refused tax relief during the current four-year legislative term.

“Working harder is not worth their while for many because the state siphons off too much,” said Carsten Linnemann, the lower house lawmaker who heads the MIT group. “We not only want our tax system to be simpler, we also want it to be more performance-oriented.”

With first-half tax revenue up 5.6 percent, the government has some wiggle room to make cuts. Germany has also run a balanced budget since 2014 and already has plans to finance spending through 2020 without taking on new debt.

Leeway

Schaeuble said in June that he doesn’t want tax revenue as a share of gross domestic product to rise, which means there’s leeway for “moderate” tax cuts in a growing economy. The government needs to examine if Germany’s tax system needs changes in the context of competition in the global economy, he said.

“In the past, someone had to have ten times the average income to pay the top tax rate. Today, the top rate already applies just above the average income,” said Hans Michelbach, an MIT member and lawmaker from the Bavarian sister party to Merkel’s CDU. “Therefore, we need significant relief -- especially for median incomes --- and a lower tax rate overall.”

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