German Chancellor Gerhard Schroeder said Germany could not afford to slacken the pace of reform in the year ahead and repeated an offer to the conservative opposition for talks on overhauling the tax system.
In an interview with the weekly Der Spiegel released on Saturday ahead of publication, Schroeder said the "Agenda 2010" tax and welfare reforms, passed before Christmas after months of wrangling with his own Social Democrats as well as the opposition, would be continued in 2004.
"The most important thing is, not to fall back and rely on deceptive hopes that an economic upswing may produce an adequate dividend," he said. "Structural reforms cannot be neglected."
He said reform of the pension system, including less bureaucratic regulation of the private "Riester pensions" named after former Labour Minister Walter Riester and measures to counteract the funding problems caused by longer life expectancy, would be among the priorities.
Reforms in areas such as immigration law and research and development would also be key but the Chancellor said there were no plans for a major shakeup of the cabinet, rejecting suggestions that Finance Minister Hans Eichel may be replaced.
Schroeder also said he would be willing to begin negotiations with the opposition over reforming and simplifying the tax system, repeating an offer he has already made a number of times since the Agenda 2010 reforms were agreed.
But he said the opposition would have to be prepared to accept cuts to tax breaks and subsidies for groups including commuters and homeowners.
"I am happy to talk about any ideas on simplifying it - but not in such a way that the opposition talks about lower tax rates and leaves me out in the open to think up ways of financing it," he said.
Schroeder's offer comes as the opposition seeks to agree a tax reform package of its own.
Friedrich Merz, finance spokesman of the main opposition party, the Christian Democrats (CDU), has proposed a radically simplified system with three income tax rates of 12 percent, 24 percent and 36 percent which would do away with most tax breaks.
But the plan has been criticised by the government and some within the opposition's own ranks for leaving a 24 billion euro funding hole in the budget which would have to be filled by savings elsewhere.
Bavarian state premier Edmund Stoiber, the leading figure in the CDU's sister party, the Christian Social Union (CSU), told Focus magazine his party proposed a tax model with a bottom income tax rate of 13 percent and a top rate of 39 percent, which would set a flat 25 percent tax on investment income.
Despite reservations about the Merz plan within the CSU, he said he did not expect any significant disagreement with over the issue and said he expected a joint position by the beginning of March.
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