Coalition bickers over tax reform promises

German Finance Minister Wolfgang Schäuble on Thursday ruled out a major tax reform before 2013, potentially setting the stage for conflict within Chancellor Angela Merkel's new centre-right coalition.

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“A fundamentally new tax system is not the deal,” Schäuble told daily Rheinische Post, referring to coalition agreement between his conservative Christian Democrats (CDU) and the pro-business Free Democrats (FDP). “When you have that in mind, it can only happen with noticeably large (tax) relief. But there’s no money for this in the coming four years.”

His comments contradict those made by Merkel in a major policy speech to parliament on Tuesday when she named 2011 as her goal for a new tax system.

An overhaul of the tax system, which would include a simplification and cutting of tax rates, was a major election campaign pledge by the FDP.

Schäuble was named finance minister last month after Merkel's Christian Democrats were able to ditch the centre-left Social Democrats for the FDP after winning September's general election. The new government has since agreed to speed Germany's recovery from its worst post-war recession with €24 billion in tax relief and other fiscal measures.

But the package will boost Germany’s growing debt, which could put Berlin in violation of EU deficit limits. The fiscal measures have also come under fire by politicians in Germany’s 16 states, which are worried about how to make up for lost tax revenues.

Meanwhile Alexander Dobrindt, the general secretary for the CDU’s Bavarian sister party, the CSU, said on Wednesday night that the FDP’s plan to simplify tax levels was an unjust “beauty contest of rates and curves.”

The FDP meanwhile attempted to remind both the CDU and the CSU that they had signed on to tax reform in coalition negotiations.

“The contract is also to be maintained by all those who signed,” Carl-Ludwig Thiele, FDP parliamentary floor leader said, adding that Dobrindt’s criticism was a CSU attempt to increase its profile against the FDP.