It took more than a month of tough negotiating for Germany’s new government tofinally reach an agreement on a left-right coalition deal. Sharing a common goal of sorting out the nation’s massive financial problems, both the conservatives and Social Democrats saw room for compromise.
Their priority now is to drum up the 35 billion euros they say is needed by 2007 to bring the country’s deficit back in line with EU limits.The parties plan to do that through spending cuts but also through higher taxes. The “grand coalition” negotiators have taken a gamble that could see domestic consumer spending further weaken. The SPD eventually gave into the conservatives and as of 2007 VAT will go up by 3 points – from 16 to 19 percent. One percentage point of that will go to cutting non-wage labour costs – the remainder to plugging holes in the budget. But the SPD got its way on increasing taxes for high earners. From 2007, personal incomes over 250,000 euros a year will be taxed 45 percent – up from the current 42 percent. There are also to be changes to the labour market. Probationary periods for new employees are going up to two years, from the six months at present. Long-term jobless benefits in east Germany are to be raised to the level of the West. And workers will see a rise in state pension contributions – they will go up 0.4 percent to 19.9 percent from 2007. Added to that public sector workers will be asked to stay on an extra hour a week at the office – the working week is to go up to 41 hours. But that is not all. Retirement age will progressively be raised from 65 to 67 from 2012 to 2035. In terms of energy goals the SPD had its way – nuclear power stations are to be gradually taken out of service by 2020. As they are phased out renewable energy sources will be brought in – it is hoped that in 15 years time, 20 percent of electricity output will be green.