BERLIN/ISTANBUL, Oct 3 (Reuters) - A senior ally of Chancellor Angela Merkel said Germany's next government has little room for tax cuts and must look at cutting spending, a view echoed by Bundesbank President Axel Weber on Saturday.
Merkel's conservatives campaigned on a pledge of tax cuts worth 15 billion euros ($21.80 billion) and the pro-business Free Democrats (FDP), with whom they plan to begin coalition talks on Monday, promised to slash taxes by 35 billion euros.
But Roland Koch, the conservative premier in the state of Hesse who is seen as a potential finance minister in the new federal government, said the two groups had little room to reduce taxes in the next four years.
'The room for tax cuts is very limited given the economic crisis,' he told the Hamburger Abendblatt newspaper in an interview released on Saturday. 'In this legislative period, we will have 15 billion euros at most to distribute.'
Germany emerged from its deepest recession since World War Two in the second quarter, when it grew by 0.3 percent from the first three months of the year. Weber said the economy probably grew by 0.75 percent in the third quarter but that it would take until 2013 to reach 2008 economic output levels again.
The Bundesbank chief called for structural reforms to raise Germany's economic growth potential and said there would only be room for tax cuts when savings had been made.
'I think that, due to the considerable need for consolidation, very little room will arise in the coming years to reduce the overall burden people face,' he added on the sidelines of an International Monetary Fund meeting in Istanbul.
Germany's budget deficit is expected to hit 6 percent of gross domestic product (GDP) in 2010 -- twice the European Union limit -- and it faces EU disciplinary steps soon for breaching the rules, an EU diplomat said on Thursday.
Coalition sources say the conservatives and FDP are looking at a two- or three-step tax cut, starting in 2011 .
Koch said the new government would focus 'primarily on the question of progression with income tax'.
So-called 'cold progression' -- or 'clandestine tax increases' -- arises in Germany because the state does not adjust tax brackets for inflation, meaning workers are shifted into higher tax brackets even when real incomes have not grown.
Tax rises were ruled out for the coming legislative period, Koch said, but he added that the incoming government would review government programmes, subsidies and services.
Der Spiegel magazine, citing a chancellery internal document for the coalition talks, said the incoming government would need to save 40 billion euros by the end of the new legislative period, which is due to run until 2013.
The conservatives and FDP will aim to hammer out policy agreements during their coalition talks and will divide up cabinet posts.
For a Q+A on how coalition talks work:
(Additional reporting by Gernot Heller in Istanbul)
(Writing by Paul Carrel; Editing by Ron Askew) ($1=.6879 Euro) Keywords: GERMANY COALITION/TAXES (paul.carrel@reuters.com; +49 30 2888 5214; Reuters Messaging: rm://paul.carrel.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
Merkel's conservatives campaigned on a pledge of tax cuts worth 15 billion euros ($21.80 billion) and the pro-business Free Democrats (FDP), with whom they plan to begin coalition talks on Monday, promised to slash taxes by 35 billion euros.
But Roland Koch, the conservative premier in the state of Hesse who is seen as a potential finance minister in the new federal government, said the two groups had little room to reduce taxes in the next four years.
'The room for tax cuts is very limited given the economic crisis,' he told the Hamburger Abendblatt newspaper in an interview released on Saturday. 'In this legislative period, we will have 15 billion euros at most to distribute.'
Germany emerged from its deepest recession since World War Two in the second quarter, when it grew by 0.3 percent from the first three months of the year. Weber said the economy probably grew by 0.75 percent in the third quarter but that it would take until 2013 to reach 2008 economic output levels again.
The Bundesbank chief called for structural reforms to raise Germany's economic growth potential and said there would only be room for tax cuts when savings had been made.
'I think that, due to the considerable need for consolidation, very little room will arise in the coming years to reduce the overall burden people face,' he added on the sidelines of an International Monetary Fund meeting in Istanbul.
Germany's budget deficit is expected to hit 6 percent of gross domestic product (GDP) in 2010 -- twice the European Union limit -- and it faces EU disciplinary steps soon for breaching the rules, an EU diplomat said on Thursday.
Coalition sources say the conservatives and FDP are looking at a two- or three-step tax cut, starting in 2011 .
Koch said the new government would focus 'primarily on the question of progression with income tax'.
So-called 'cold progression' -- or 'clandestine tax increases' -- arises in Germany because the state does not adjust tax brackets for inflation, meaning workers are shifted into higher tax brackets even when real incomes have not grown.
Tax rises were ruled out for the coming legislative period, Koch said, but he added that the incoming government would review government programmes, subsidies and services.
Der Spiegel magazine, citing a chancellery internal document for the coalition talks, said the incoming government would need to save 40 billion euros by the end of the new legislative period, which is due to run until 2013.
The conservatives and FDP will aim to hammer out policy agreements during their coalition talks and will divide up cabinet posts.
For a Q+A on how coalition talks work:
(Additional reporting by Gernot Heller in Istanbul)
(Writing by Paul Carrel; Editing by Ron Askew) ($1=.6879 Euro) Keywords: GERMANY COALITION/TAXES (paul.carrel@reuters.com; +49 30 2888 5214; Reuters Messaging: rm://paul.carrel.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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