Economists slam Merkel's tax relief plans

A panel of top economists believes Chancellor Angela Merkel's new centre-right government should take back its "gift baskets" of tax relief in light of Germany's huge public debt.

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Merkel "promised us that the government would do everything so that our gloomy forecasts would not happen... They can therefore pack up their beautiful gift baskets," Wolfgang Franz, head of the so-called "Five Wise Ones" panel, told the latest edition of Der Spiegel magazine.

The influential group of economists has forecast growth of 1.6 percent for 2010, which it says is not enough to replenish the public coffers. Two weeks ago they criticised the lack of "concrete information" from the new centre-right government about their plans to reduce the deficit and deal with expected massive drop in tax revenue.

A tax relief package, already voted on by the German parliament amounting to some €8.5 billion ($12.6 billion), is set to take effect in January.

In the panel's annual report released earlier this month, the economists issued a sharp attack on the new government saying its plans to reduce the country's ballooning debt were "vague" and "deceptive."

Merkel, re-elected in September at the head of a new coalition, failed to recognise the scale of the challenges facing Europe's biggest economy, it said. In particular the new coalition of conservative Christian Democrats (CDU) and pro-business Free Democrats (FDP) has failed to spell out how it will reduce Germany's budget deficit and an "exit strategy" for reducing massive stimulus measures propping up the economy, the panel said.

Michel Fuchs, deputy head of the CDU parliamentary group, called the panel's criticisms "not only presumptuous and false, but also dangerous."

But Franz stressed the economic panel was an independent body without a political agenda. "We deliberately express ourselves in terms that are clear and not very diplomatic," Franz told Der Spiegel. "Our mandate is to warn against bad developments, not to sing someone's praises."

He said "the government cannot rely only on growth, which will not be enough to generate the €37 billion which we estimate are needed between now and 2016 to consolidate" the public finances.

Data from the national statistics office earlier this month indicated that the German economy made a comeback in the second and third quarters of 2009 from its worst post-war recession, in large part owing to huge injections of cash - some €80 billion - from the state.