BERLIN (Reuters) – German Chancellor Angela Merkel is under pressure to resolve a dispute on taxes and welfare between her centre-right coalition partners this weekend in order to present a united front before elections in 2013.
The challenge for Merkel’s conservatives and their junior Free Democrat (FDP) partners is to ensure that any compromise on rival welfare proposals does not threaten the government’s ambitious goal of balancing the budget by 2014.
She must also deflect accusations from the centre-left opposition that she is attempting to bribe German voters before next September’s elections and a state vote in Lower Saxony in January.
The opposition says it is no coincidence that a meeting of coalition leaders on Sunday evening takes place without her feisty finance minister, Wolfgang Schaeuble, who will be in Mexico for a G20 meeting.
“Angela Merkel‘s coalition is going to dish out election gifts. She is taking the precaution of doing this without the finance minister being present,” said Thomas Oppermann, the parliamentary floor leader of the Social Democrats (SPD).
But Schaeuble has also taken precautions, limiting scope for fiscal largesse by committing this week to a structurally- balanced budget by 2014, two years before the “debt brake” law stipulates that Germany must reach this goal.
Tax-cut enthusiast Michael Fuchs, a lawmaker from Merkel’s Christian Democrats (CDU), pleaded this week: “When, if not now, should the coalition give people some real relief?”
Hoping to muzzle such talk, Schaeuble presented new tax estimates for 2013 to 2016 this week showing the above-estimate revenue growth of recent years that has led to record levels of income will ease from next year as the German economy slows.
That should ensure that, beyond adjustments in welfare and pension contributions that may be agreed on Sunday by the CDU, its Bavarian sister party the CSU and the FDP, there will be no dramatic tax cuts threatening Schaeuble’s fiscal ambitions.
In a rare moment of harmony with Schaeuble, FDP leader and economy minister Philipp Roesler agreed that “the tax estimates show times are getting harder, making it even more important to ensure our budget is crisis-proof”.
The German government has slashed its 2013 GDP growth forecast to 1.0 percent from 1.6 percent as the euro zone crisis, along with slower global growth, take their toll on Europe’s biggest economy.
“A BIT OF A SHOW”
SPD budget expert Carsten Schneider still fears Merkel will use tax windfalls as “putty” to keep her coalition together.
Merkel’s 2009 decision to swap a “grand coalition” with the SPD for an alliance with the FDP has plagued her second term. The FDP has suffered a string of local election defeats and squabbled with Bavarian state premier Horst Seehofer’s CSU.
One stone of discord has been the CSU’s proposal for extra child benefit payments for parents who keep their toddlers at home, in the context of scarce state kindergarten places.
Critics say this would keep women out of the workplace and children of poorer immigrants out of kindergartens where they would learn German and integrate. The FDP also argues that it places an additional burden on state finances.
But the benefit was written into the 2009 coalition deal and the FDP may now cede – if the conservatives agree to scrap an unpopular health surcharge of 10 euros per quarter for visits to the doctor. Meant to reduce unnecessary appointments, critics say it just keeps low earners away and generates red tape.
FDP whip Rainer Bruederle said it could be financed from the large surpluses held by obligatory health insurance schemes, which he said were starting to resemble “savings banks”.
The coalition will also discuss state pension contributions and the cost to households of the switch to renewable energy.
But political scientist Gero Neugebauer said the meeting of Merkel, Seehofer, Roesler and their party lieutenants was less about economics than patching over political differences.
“They will put on a bit of a show before the election in January in Lower Saxony. But anything they agree that has any impact on government finances will only be provisional because Schaeuble has to approve it and he won’t be there,” he said.
(Additional reporting by Erik Kirschbaum, Andreas Rinke and Thorsten Severin; Writing by Stephen Brown, Editing by Gareth Jones and Angus MacSwan)
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