Merkel seeks to appease German states in tax cut row
German Chancellor Angela Merkel came closer to resolving a row over tax cuts with her country's federal states on Sunday, ahead of a key vote on Friday which could thwart the government's economic stimulus plans, dpa reported.
The premier of the northern state of Schleswig-Holstein, Peter Harry Carstensen of Merkel's Christian Democrats (CDU), has threatened to block next week's vote in the upper house of parliament, fearing that the proposed tax cuts will place too great a financial burden on his state.
The CDU's slender majority in the Bundesrat, which represents Germany's 16 federal states, means Carstensen's "no" vote could overthrow the first key proposal put forward by Merkel's new coalition with the Free Democrats (FDP).
This would deal a serious blow to the CDU's coalition with the pro-business FDP, after both parties were voted in on pledges to lead Germany out of the economic crisis by stimulating the economy with lower taxes.
Hopes of a deal rose during the meeting in Merkel's Berlin office, although no agreement was reached, in what one government source had billed as an "exchange of opinion."
The talks were also attended by Vice-Chancellor Guido Westerwelle of the FDP and Wolfgang Kubicki, leader of the FDP in Schleswig- Holstein, which is also ruled by a CDU-FDP coalition.
"The probability of an agreement is greater than yesterday," Kubicki said afterwards.
The proposed tax cuts would increase family allowances and reduce the tax on hotel rooms, as well as lowering the tax burden for businesses and inheritances - resulting in annual taxpayer savings of 8.5 billion euros (12.5 billion dollars).
Carstensen, the most vocal critic of the proposals, has said his highly indebted state could not bear the expected 130-million-euro drop in Schleswig-Holstein's tax income.
Schleswig-Holstein's premier has found support in the eastern German state of Saxony, where there are fears that the tax cuts would force the state to take on new debt for the first time since 2006.
Other states have warned against Merkel offering any special concessions to Schleswig-Holstein, threatening to block the proposal if it were sweetened for individual states.
Merkel's strongest backers include the states of Bavaria and North Rhine-Westphalia, who have both pledged to vote in favour of the tax cuts in the Bundesrat on Friday.
"If we don't achieve growth now, unemployment will rise. It is better to invest in growth than suffer further tax losses," said the Premier of North Rhine-Westphalia, Juergen Ruettgers, who faces state elections next year.