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Merkel hopes tax cuts will spur growth

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Merkel hopes tax cuts will spur growth


The new German government has laid out its agenda for the future, with a wide-ranging but somewhat vague plan to rescue Europe’s biggest economy. Two weeks after being sworn-in for a second term, Chancellor Angela Merkel told parliament that tax cuts are the best way of lifting Germany out of its deepest downturn since the Second World War.

“My government wants growth to inject new strength into the economy,” she said. “To help this, we are preparing a new stimulus package for 2011 in the form of income tax relief. This stimulus will also help in the long-term revision of the fiscal system.” It went down well with her supporters, but was conspicuously light on detail: she simply said that without growth there could be no investment, no new jobs and no help for the weak. Her beaten election rival, Frank Walter Steinmeier, said there were more questions than answers. “Is this going to be like flying financially blind, as it appears to be?” he said. “Are tax cuts going to be financed by new borrowing? Does this mean an end to social solidarity, including in healthcare policy?” The Chancellor laid out a number of priorities, but beating the recession is uppermost. She warned against relying on a recent fragile recovery, saying unemployment would continue to rise. Since winning the election, Merkel has been attacked by industry critics for ignoring Germany’s rising budget deficit, and for failing to say how she will pay for her pro-growth policies.

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