2017 Election

Wooing Voters With Tax Cuts

Unionsfraktionsvorsitzender Volker Kauder (l) und Finanzminister Wolfgang Schäuble (beide CDU) unterhalten sich am 19.08.2015 in Berlin in den Bundestag. In einer Sondersitzung stimmen die Abgeordneten über neue Milliardenhilfen für Griechenland ab. Foto: Wolfgang Kumm/dpa +++(c) dpa - Bildfunk+++
Parliamentary group leader Volker Kauder (l) and Finance Minister Wolfgang Schäuble. Both have spoken of potential tax cuts.
  • Why it matters

    Why it matters

    With an eye on a healthy federal budget surplus, Germany’s conservative political parties are looking to attract voters in next year’s federal election with tax cuts and other incentives.

  • Facts

    Facts

    • CDU plans call for tax cuts that would reduce government revenue by €12 billion to €15 billion.
    • A group representing the Mittelstand wants tax cuts of €32.4 billion annually starting in 2019.
    • Social Democrats want investment in education and research instead of more tax cuts.
  • Audio

    Audio

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Germany’s next general election in the fall of 2017 is more than a year away. But for conservative politicians, the courting of voters with promises of lavish financial assistance and tax cuts is already in full swing.

Earlier this month, Finance Minister Wolfgang Schäuble, a member of Chancellor Merkel’s conservative Christian Democratic Union party, spoke of the possibility of tax cuts after the election amounting to some €12 billion ($13.4 billion) per year.

Then a CDU group representing Germany’s Mittelstand, the country’s robust sector of small-to-medium sized companies, crafted its own tax plan, calling for €32.4 billion in cuts starting in 2019.

Over the weekend, Volker Kauder, the parliamentary leader of the CDU and its Bavarian sister party, the Christian Social Union, gave the tax debate new momentum: “I can imagine tax relief of up to €15 billion per year,” he said.

“It is clear that significant tax cuts will definitely play a part in the election platform of the CDU and CSU,” Jens Spahn, deputy finance minister and a rising star in the CDU, told Handelsblatt. “After 2017, we want to use the extra room to reduce taxes without going into debt.”

“It is clear that significant tax cuts will definitely play a part in the election platform of the CDU and CSU.”

Jens Spahn, Deputy Finance Minister

The head of the CDU Mittelstand group, Carsten Linnemann, was enthusiastic about the possibility of tax cuts. “We are pleased with this long-overdue debate,” he told Handelsblatt.

But he thinks Mr. Kauder’s proposed €15 billion doesn’t go far enough. “We’re sticking to our proposal: One third of tax revenues belongs back in the hands of the citizens who paid those taxes, after all,” said Mr. Linnemann. That would leave the other two thirds for “investment, education and security,” he said.

The Mittelstand group is proposing a three-stage plan. First, the flat rate for income-related costs should be increased in 2018 from €1,000 to €2,000. In 2019, the upper threshold for the highest income tax bracket would be raised from €53,666 to €60,000. The tax rate for income below this threshold would be lowered simultaneously. In 2020, children would be afforded the same basic tax allowance as adults. Currently it is about €1,400 for a child.

The Mittelstand association wants to reduce the so-called middle class “bulge,” in which middle-income groups shoulder an increasing marginal tax burden. In principle, this is in line with Mr. Kauder’s approach. “In my view, it’s especially families and those with smaller and medium-sized incomes who should benefit,” he said.

Mr. Spahn agreed. “The economy is running, tax revenues are humming. So the police, nurses and workers, and all those who keep things running, should keep more of their hard-earned money.” This would promote growth, he said.

The CSU’s tax plan drawn up by the Bavarian finance minister, Markus Söder, also focuses on tax cuts for low- and average-wage earners. However, his program only provides for cuts of slightly more than €10 billion. There’s likely to be a heated debate in the two conservative camps over the final sum.

The center-left Social Democrats, the junior party in the ruling coalition, is also getting into the act. Party leader Sigmar Gabriel spoke Sunday about relief for workers and families in an interview with German broadcaster ZDF. However, the SPD’s stance is that cuts to the costs of social benefits are more important than tax cuts. Pointing to necessary investments, Mr. Gabriel warned against “giant tax cut promises” such as those proposed by the Mittelstand group. “We need to invest significantly more in education and research,” he said.

And what do the voters have to say about this debate? There have been promises of tax cuts in past election campaigns, without results. Most recently the CDU, in its previous coalition with the pro-business Free Democratic Party, broke a campaign promise to cut taxes.

Voters punished the FDP for failing to deliver on its promise, and the party fell out of its coalition with Ms. Merkel’s conservatives, failing even to send representatives to the Bundestag.

The CDU and the FDP’s successor, the SPD, didn’t make the same mistake.

“We promised no new taxes and no tax increases,” Mr. Kauder said of the current right-left ruling coalition. That promise has been kept, he argued. “You can trust us that we will keep our word again.”

 

Peter Thelen writes about social security, the job market and labor issues. To contact the author: thelen@handelsblatt.com

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