German finance minister attacks conservatives over ‘dishonest’ tax cut

FILE PHOTO: German Finance Minister Olaf Scholz attends a media briefing during his visit to Beijing
FILE PHOTO: German Finance Minister Olaf Scholz attends a media briefing during his visit to Beijing, China, January 17, 2019. REUTERS/Thomas Peter/File Photo

January 29, 2019

BERLIN (Reuters) – Germany’s finance minister on Tuesday criticized calls from the country’s conservative party to reduce income tax for the rich to support a slowing economy, calling that a dishonest and dubious move that was destroying trust in politics.

Speaking at an event organized by the Association of Taxpayers, a lobby group which is pushing for tax cuts, Olaf Scholz rejected calls from Chancellor Angela Merkel’s Christian Democrats (CDU) to lower the tax burden for the rich.

“We can’t cut taxes when at the same time, we also want to spend more on investments, education, defense, development aid and social affairs. Making demands without saying what the counter-financing looks like is not serious,” Scholz said.

The Social Democrats (SPD), to which Scholz belongs, and the CDU agreed in the deal setting up their coalition government last year to abolish “Soli”, a 5.5 percent surtax introduced in 1991 to rebuild East Germany after reunification. But the deal called for maintaining it for the top 10 percent of earners.

Economy Minister Peter Altmaier and other senior members of CDU, want to abolish Soli for all taxpayers.

The SPD version of the cut would cost the state some 10 billion euros ($11.42 billion) per year, money that could boost domestic demand as exports slow.

Scholz, who serves also serves as vice-chancellor, said he would stick to the government’s fiscal goal of increasing state spending while not taking on new debt.

“We handle citizens’ money responsibly and do not want to take on new debt. Lowering the government debt ratio in times of economic growth is the way to go,” Scholz said.

“Promising tax cuts for which there is no counter-financing is dishonest and does not build trust, because today’s tax cuts are tomorrow’s tax hikes, since new borrowing has its limits,” Scholz said, pointing to Germany’s constitutionally enshrined limit on debt.

The government hopes the tax cuts for middle and high income earners as well as higher child allowances that come into effect in January will boost consumption, which has replaced exports as the main driver of growth.

In addition, Scholz is working on a draft law to support companies that are spending money on research and development.

(Reporting by Michael Nienaber, editing by Larry King)

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