A sharp rise in VAT and cuts in welfare programmes for the retired and the unemployed are the cornerstones of the treaty between conservatives and social democrats, the partners in Germany’s prospective coalition.
Savings: Roland Koch (CDU), the influential minister president of the Land of Hessia, and finance minister-designate Peer Steinbrück have together presented a savings package amounting to 15 billion euro. Some conservatives consider the package to be insufficient. In order to meet stability and growth pact conditions, Germany will have to save 35 billion euro by 2007.
Taxation: There will not be an all-around reform and simplification of income taxation, which was a central point of the conservative agenda. Instead, a VAT rise of 3% (up to 19%) is likely to be part of the agreement between conservatives and social democrats. A so-called wealth tax – a 3% rise of the income tax for people with a yearly income of 130,000 euro or more – is still being discussed, but is very controversial with the CDU. The wealth tax was asked for by the SPD in order to balance the big load lower-income households will have to contribute to financing Germany’s deficit.
Subsidies: Cuts are proposed to subsidies for commuters, for tax deductability of the rent for home office and of tax consultants’ bills, among other things. The threshold for tax-free savings accounts may be lowered, also. On the other hand, the restructuring of subsidies for home-owners is likely to cause additional costs.
Labour: The upcoming coalition will stick to the labour market reforms initiated by the outgoing red-green coalition, but envisages cuts of 4 billion euro. One day before the planned conclusion of the coalition talks, there is no clarity as to how this amount of money will be saved – in particular since the upcoming coalition wants to raise unemployment benefits in Eastern Germany to the same level as in the West. Tax rises, which the CDU/CSU justified with a need to lower contributions to the unemployment insurance, will now go into reorganising the finances, which means contributions will remain the same or even rise.
There will not be a legal framework for local or single-company exceptions from sectoral collective bargaining agreements, which the CDU had demanded.
Dismissal protection will be softened, becoming fully effective only two years after a person has been hired. This was a central point of the conservative agenda. In return, it will become harder to impose time limitations in fixed contracts for employees. The enterprise size threshold for being exempt from dismissal protection will not rise from the present number of ten employees, as the CDU had demanded.
Social system: Retired persons may have to pay contributions to health insurance themselves. Currrently, their 7% contribution is matched by the state-run pension system. The cut could mean 13 billion euro less tax-financed payments to the pension system, experts say. An overhaul of Germany’s health insurance system has been dismissed until the end of 2006; neither the CDU’s ‘health award’ scheme nor the SPD’s ‘citizen insurance’ found their way into the coalition agreement.
Civil service: Civil servants are facing cuts to seasonal benefits and an increase in the weekly working time from 40 to 41 hours.
Nuclear energy: The so-called nuclear compromise, achieved by the outgoing red-green coalition in the late nineties, will not be touched. This means that Germany’s remaining 18 nuclear power plants will be shut down between now and 2022. The CDU/CSU would have favoured longer decommissioning periods.