Wednesday, July 13, 2005

Merkel disappoints

That much-expected plan for reviving the German economy, should the Christian Democrats under Angela Merkel come into power, has been revealed – cautiously.

It seems to be not a whole lot of ideas and is, therefore, rather disappointing to those, such as the Wall Street Journal Europe and, possibly, other commentators who somehow expected that a potential CDU led government will put Germany onto her feet and turn the EU into a flourishing, forward-looking free-market institution.

The main points of the programme are:

- Companies will be allowed to opt out of nationwide pay deals – a radical proposal by German standards and one that may help a few firms to negotiate rational deals that will help employer and employee.

- Job-protection laws will be relaxed, which may have some sort of an economic effect.

- Low-wage jobs will be subsidized.

- Federal corporate tax rate to be cut from 25 per cent to 22 per cent (with regional taxes remaining as they are, presumably).

- Payroll taxes to be cut and the “shortfall” to be subsidized by a VAT raised to 18%.

- Income tax to be cut, the top rate reduced to 39 per cent and tax breaks to be scrapped to make up the difference. As the loopholes will be closed a year before the proposed tax cuts (even marginal ones) the whole exercise will look like a tax hike.

- Health care to be funded in future from a flat-rate insurance premium.

It seems that the CDU policy is to take the tax burden off business, which seems a very sensible approach, given the problems the German economy faces, and to pass it on to the consumer. There is no suggestion that in some way the whole tax burden should be lessened and less money taken in by the government.

Nor is there any suggestion of reforming the expensive and creaking welfare system. The argument is, presumably, very similar to the one used by both the main parties here: there is not a great deal of money to manoeuvre with and the welfare system is enormously popular. Anyone who suggests changing it is looking at an electoral oblivion.

Is that really so? German unemployment has been running at more than 10 per cent for some time. The country is stagnating in every sense and the majority of the public, if the opinion polls are to be believed, expect radical reforms from the CDU, which, neverheless leads by 20 points in the same opinion polls.

The German public, it seems, expects in vain.

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