TAX NEWS - JUNE 2010

Germany Tax: German Economics Minister Rules Out Tax Hikes Report

by Andrea Thomas, 01 June 2010, BERLIN (Dow Jones) -- Germany's junior coalition partner will veto tax hikes to tackle the government's budget deficit but instead favors spending cuts and time limits on subsidies, the Frankfurter Allgemeine Zeitung newspaper reported German Economics Minister Rainer as saying Tuesday.

"Tax cuts won't be an option for the Free Democratic Party," said Bruederle, whose Free Democratic Party had lobbied hard for tax cuts. Chancellor Angela Merkel recently said that this was not an option due to the budget constrains.

Plans for tax cuts and a simplification of the tax system have been merely postponed, not abolished, Bruederle said.

Bruederle argued for across the board spending cuts, with the exception of education and research. He also proposed a strict debt limit for the labor agency which pays out unemployment benefits, saying this could help reduce government subsidies by several billions of euros over the next three years.

He also said he opposes stealth tax hikes through higher value-added taxes for some products, adding that "this would further burden the already weak domestic demand."

The center-right coalition meets Sunday and Monday to draw up a list of measures for the government's fiscal plans for coming years.

The German government is obliged to reduce its structural deficit to up to 0.35% of gross domestic product by 2016, which makes an annual reduction of the deficit by around EUR10 billion from 2011 necessary.

German government spokesman Ulrich Wilhelm said Monday that the government's austerity efforts in 2011 will be "higher than strictly necessary."