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German Coalition Agrees on Tax for Wealthy, Other Reforms

DW staff (als)May 2, 2006

Germany's grand coalition government spent a long night in negotiations over key reforms. After five hours of discussions, leaders have reached compromises over a wealth tax and parental subsidies, but not health care.

Germany's richest will have to pay extra taxes come 2007Image: picture-alliance/ dpa

Kurt Beck, the designated leader of the Social Democratic Party, was clearly buoyant after lengthy discussions over key reforms in the German chancellery.

"We have come along very nicely and are on the way with all the important issues we wanted to tackle," Beck said. "As you can see, I'm very happy."

Introducing reforms was seen as a key test for Chancellor Angela Merkel's grand coalition government. For weeks the Social Democrats and Christian Democrats -- who form the coalition -- have argued over the reforms. Now it seems they have finally come to agreement, at least over some important issues. CDU Secretary General Ronald Pofalla said on Tuesday that coalition partners "want a joint success."

Wealth taxes and aid for new parents

A "wealth tax" is to be introduced, by which high earners will be obliged to pay more in taxes. As of January next year individuals with an annual income of 250,000 euros ($316,000) or more will have to pay 45 percent income tax -- that is an increase of 3 percent.

The new system will exclude small businesses, a move pushed for by the conservatives. Markus Söder, the secretary general of the Bavarian CSU party, which is also in the coalition government, said negotiators were keen to avoid burdening small businesses any further.

The new tax is expected to free up more than a billion euros for state coffers -- money chancellor Angela Merkel desperately needs to finance yet more costly reforms.

If the money's right, men want to raise children

Eltern mit Kind in Klappwagen
Parents have to juggle work and familyImage: BilderBox

The coalition also came to an agreement over benefits for parents who want to take time off from work to look after their newborn babies. The coalition partners agreed on a 12-month scheme, with an option for another two months if the father also takes paternity leave. During this time, parents will then receive up to 67 percent of their last net earnings per month, but no more than 1,800 euros.

Every second man in Germany says he would take time off work to raise children, if he had the financial means to do so. Both Christian Democrats and Social Democrats were keen to improve the situation for parents, in order to boost Germany’s low birth rate.

"We have agreed on a fundamental change of family policy," Pofalla said. "We don't expect the costs of the measure to go beyond the calculated 3.8 billion euros, but we are convinced it will become a success, leading to higher birth rates."

The reform plan was spear-headed by Family Minister Ursula von der Leyen, who is now hoping to encourage the huge number of working, childless couples in Germany to have more babies.

The FDP and Greens are dubious

But on the streets, people do not appear to see extra money as an incentive to have children. One man said: "That wouldn't be a reason for me to father a child." A woman said: "If I want to have a baby, I'll think about it carefully. More money won't influence my decision."

Renate Künast für Frauengalerie
The Green Party parliamentary leader Renate KünastImage: dpa zb

The opposition in government -- the Free Market Liberal party (FDP) and the Green party -- are equally skeptical about the new scheme for parents. They believe that economic aid is not enough and that the child care system in Germany must be improved.

"What good does parental aid do when after 12 or 14 months there's no child care?" asked Dirk Niebel, the secretary general of the free-market liberal Free Democratic Party, the largest opposition party. Green Party parliamentary leader Renate Künast meanwhile warned that the coalition agreement on parental aid included a "bag of conjuror's tricks" that would end up costing tax-payers more.

The reforms were key elements in the coalition government's plan to reform taxes, state benefits and the health service. But an overhaul of the health system is one area where Angela Merkel's government must still make progress.