Germany's lower house of parliament approved a controversial new budget law on Friday that paves the way for the country's biggest tax increase since World War Two.
The centrepiece of the law is a 3 percentage point increase in value-added tax (VAT) to 19 percent, which Chancellor Angela Merkel's government wants to finance a reduction of the budget deficit and a lowering of payroll costs.
Economists have warned that the VAT hike, which is due to go into effect next year and cost taxpayers up to 18 billion euros ($22.95 billion) annually, could hit the German economy just as it is showing signs of emerging from years of sub-par growth.
The Bundestag lower house, where the ruling parties hold an overwhelming majority, voted 396 to 146 in favour of the law, with three abstentions.
The Bundesrat upper house, where the government also has a majority, is expected to approve it next month.
Before the vote, a fiery debate took place in the Bundestag chamber, with Finance Minister Peer Steinbrueck defending the measure as a necessary step to consolidate a budget which has violated European Union limits for four straight years.
"People are demanding a consolidation of the budget ... but every measure we propose is criticised," Steinbrueck said.
A member of the centre-left Social Democrats (SPD), Steinbrueck was ridiculed by opposition parliamentarians for backing a tax hike his party had condemned during last year's election campaign.
"How can you stand up here and defend something you labelled economically dangerous before the election," said Guido Westerwelle, head of the liberal Free Democrats (FDP), holding up old SPD campaign flyers criticising Merkel's tax hike pledge.
Merkel was forced into a coalition with the SPD, her long-time rivals, after narrowly beating them in the September election.
During month-long coalition negotiations last year, they agreed to push through the VAT hike to bring the deficit back below EU limits. With the economy picking up and tax revenues on the rise, however, it now looks like Germany could meet the EU budget target this year - before the tax hike even takes effect.
That has led to mounting calls from economists, opposition politicians and the German media for the government to scrap the VAT hike.
"Say no to the tax craziness!" top-selling German daily Bild said on its front page on Friday, listing six reasons why the VAT increase was a bad idea.
Merkel, who came into office vowing to boost growth and cut unemployment, is betting that the measure will not come back to haunt her politically.
After six months in office, criticism of her "small steps" reform course is on the rise, with even members of her conservative Christian Democrats (CDU) worrying whether the government is doing enough to lay the foundations for an economic upswing.
A new poll for public television station ZDF showed on Friday that 47 percent of Germans now believe the government can solve the country's economic problems, down from 61 percent in November.
Unemployment is currently hovering above 11 percent and German gross domestic product (GDP) grew at a disappointing 0.4 percent in the first quarter of this year after anaemic growth of 0.9 percent last year.
Comments
Comments are closed.