Merkel Ally Sees Tax-Cut Consensus in German Coalition-Building

Updated on
  • Acting finance minister confident full-scale talks to follow
  • Altmaier comments as chancellor seeks four-party policy pact

Cutting German income taxes is emerging as common ground as Chancellor Angela Merkel and her potential partners seek to put together an unprecedented four-party government.

“I think everyone agrees that we can enable relief, relief for people with low and middle incomes,” Peter Altmaier, Merkel’s chief of staff and acting finance minister, told ARD television late Sunday. “How we do this in detail is subject to discussion.”

Read more: German industry output rises the most since 2011

With almost everything still in play as Merkel’s Christian Democrat-led bloc, the pro-market Free Democrats and the Greens explore an alliance, Germany’s economic boom and a legacy of balanced budgets under Wolfgang Schaeuble looks set to open the door to moderate tax relief. Consistently criticized for its current-account surplus by the U.S. and international agencies, Merkel’s government has faced pressure to boost domestic demand in Europe’s biggest economy.

In Merkel’s fourth term, there will be room for limited extra spending while maintaining a balanced budget, Altmaier said. He declined to comment on a report in Der Spiegel magazine that Germany may run a budget surplus of 14 billion euros ($16.3 billion) this year.

Euro, Climate

Five weeks after Germany’s election, the four parties -- Merkel’s bloc comprises her Christian Democratic Union and Bavaria’s Christian Social Union -- have yet to agree on key policies such as the euro-area’s future, climate protection and immigration reform. Top negotiators, including Merkel, plan to meet later on Monday to take stock of progress.

Investors remain relaxed at the political outlook. The benchmark DAX index was up 0.1 percent at 10:36 a.m. in Berlin, while the yield on 10-year government bonds was little changed at 0.38 percent.

Germany’s economy will be unaffected by protracted coalition talks, S&P Global Ratings said Friday, affirming its ‘AAA’ long-term rating. Germany will comply with a European Union rule limiting debt to 60 percent of the economy by 2019, helped by fiscal surpluses of around 0.2 percent of GDP through 2020, S&P said.

Read more: Bloomberg Intelligence preview of euro-area GDP data

Merkel won the Sept. 24 election with her bloc’s lowest share of the vote since 1949, leaving the political landscape fragmented. Coalition governments are the norm in Germany, though Merkel is exploring an option that’s untested at the national level.

A meeting between the chiefs of the prospective coalition parties late Sunday in Berlin “was good for the atmosphere” even though “things didn’t get any easier in just one night,” CSU chairman Horst Seehofer told reporters on Monday morning. “There will be many more of these talks until we can form a coalition,” he said.

Parties have set a mid-November target to determine whether there’s enough commonality to warrant full-scale coalition talks.

“There are quite a lot of conversations taking place these days, which is a positive sign,” said Altmaier, one of Merkel’s closest confidants. “My personal opinion is that after our first talks we’re closer to the start of coalition negotiations than it seemed two to three weeks ago.”

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