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No Tax Cuts

DW staff (cat)
December 1, 2008

German Chancellor Angela Merkel told a CDU party members that her government would not take part in a competition to find ways to spend billions of euros to boost the flagging economy.

Chancellor Merkel sanding in front of a CDU logo with CDU General Secretary Ronald Pofalla
Merkel said tax cuts would poke a hole in the federal budgetImage: AP

"We will not take part in a competition to outdo one another with an endless list of new proposals, in a senseless contest over billions," Merkel told members of her Christian Democratic Union as she opened a two-day party congress on Monday, Dec. 1.

Merkel, who's come under sharp criticism for her response to the global economic crisis, made the speech amid deep divisions within her party over how Germany should come to grips with the worst financial upheaval in decades.

"Criticism of Merkel is becoming ever louder within her party," daily Die Welt wrote. "Merkel does not want to react to the crisis before it has really arrived. Her policy is to wait until the child has fallen into the fountain before taking any action."

Three women walk out of a department store carrying shopping bags
Tax cut proponents say the break would boost spendingImage: picture-alliance / Chad Ehlers

A chorus of critics has likewise appeared among industry leaders and in the German press in recent weeks, as more people called for the chancellor to institute tax cuts.

"Merkel appears paralyzed by the economic crisis," wrote The Financial Times Deutschland.

"People have got to see more take home pay from their gross income," the head of the Federation of German Industry, Werner Schnappauf, told Monday's business newspaper Handelsblatt.

No "senseless" tax cuts before election

Merkel hit back at critics in her speech, however, calling tax cuts "senseless."

"I will not stand for action for action's sake," she said as she introduced a pre-congress resolution ruling out tax reform until after the September 2009 federal election.

"What we will not do is introduce any immediate measures to stimulate the economy for a limited period of time instead of working for a structural tax reform," she said.

A highway traffic jam
With the brakes on tax cuts, Merkel suggested spending on road repairsImage: AP

Merkel has argued that trying to spend Germany's way out of the recession would only poke a hole in the country budget as traditionally frugal consumers to stash extra cash into savings accounts rather than fill their homes with new TVs and other goods.

Instead, Merkel called for greater investment in Germany's infrastructure, including the Internet and highway system as a means for beating the financial crisis.

"Wouldn't it be a fine objective to ensure that every household in Germany has a broadband connection?" she said.

An open door for minor changes

Appearing to leave a door open for minor tax changes when she meets with key supporters on Jan. 5, she went on to say that she was following the crisis closely.

"Germany will continuously be analyzing the situation anew," she said. "Germany will keep all its options open to try to effectively fight against the consequences of the worldwide crisis -- and I'd like to emphasize all options."

"You can rest assured the government will act responsibly and with caution -- and with lightning speed if necessary."

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