Tax cuts will be moderate, says Merkel

Tax relief promised for 2013 will be moderate, German Chancellor Angela Merkel said in an interview on Sunday offering an early glimpse of a policy held dear by her pro-business coalition partners.

Tax cuts will be moderate, says Merkel
Photo: DPA

“In the fall, we will have tax income forecasts and when we know them, we will decide before the end of the year on moderate tax decreases for low and medium incomes,” Merkel said to Bild am Sonntag.

The chancellor said that the ruling conservative-liberal coalition had agreed in July on tax reductions that would take effect on January 1, 2013.

Germany holds general elections in 2013 and little indication had been given so far on the scale or type of tax cuts the government would propose.

Cutting taxes is a key policy of the junior coalition party, the Free Democrats, but Finance Minister Wolfgang Schäuble of the conservative Christian-Democratic party has resisted cuts believing that budget discipline should remain the priority.

Meanwhile, according to weekly Der Spiegel, Schäuble is about to revise the 2012 growth forecast to 2.0 percent, up from 1.8 percent previously.

“The economic rebound should continue in 2012,” Schäuble wrote in a government analysis leaked to the magazine.

However, according to the report, finance ministry experts were surprised by the fall-off in consumer demand in the second quarter this year and doubt that growth will reach above 3.0 percent for 2011.

The German economy grew just 0.1 percent in the second quarter after a sharp gain of 1.3 percent in the first as the broader European economy slumped, caught up in the eurozone debt crisis.


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German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.