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Germany

German Constitutional Court Upholds Eco-Tax

Germany's highest court ruled on Tuesday that the so-called eco-tax introduced five years ago is constitutional, rejecting claims by shipping and refrigeration companies that it was an unfair burden on them.

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Chancellor Gerhard Schröder has been a lukewarm supporter of the eco tax.

In their decision, the judges said Germany's basic law, which serves as the country's constitution, didn't guarantee businesses a profitable future.

The tax became effective in April 1999 and is levied on gas, heating oil as well as electricity to encourage people to reduce consumption. While in the first year, the tax brought an additional €4.3 billion ($5.1 billion) into government coffers, that sum has climbed to €16 billion in 2003.

The money is used to fill holes in Germany's pension funds to reduce non-wage labor costs, according to the government: In 1998, pension fund contributions still amounted to 20.3 percent of wages, falling to 19.3 percent in 2000 before slightly rising again to the current 19.5 percent. Government officials say that without the eco tax, the amount would have climbed to 22 percent by now.

Business leaders meanwhile have criticized the tax, saying that it puts the brakes on economic growth and hasn't guaranteed jobs or led to any significant reduction in pension fund contributions despite about €58 billion in tax money going towards the fund. "The only effect is taking more money out of people's wallets," Alfons Kühn of the Association of German Chambers of Industry and Commerce told the Frankfurter Allgemeine Zeitung.

According to the paper, an expert with the German institute for Economic Research (DIW) said the eco tax helped reduce carbon dioxide emissions in Germany by 20 million tons or 2 percent by 2010. But the plaintiffs in the case had argued that they were disadvantaged by the tax compared to companies working in other countries, where the tax doesn't exist. They also complained that other businesses that produce goods only have to pay a reduce rate of the tax.

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