Merkel coalition stymied by opposition veto on tax cuts

Thu Dec 13, 2012 3:14pm EST
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By Erik Kirschbaum

BERLIN (Reuters) - Chancellor Angela Merkel's center-right coalition has suffered a humiliating defeat by the center-left opposition when lawmakers threw out a plan to cut income taxes by 6 billion euros.

Rejection of the plan, which had been seen as an election-year gift to voters, showed the waning strength of Merkel's coalition nine months before the poll, analysts said.

Despite promises of cutting taxes when it took power in 2009, internal dissent within the center-right government at first blocked the initiative and later it was stymied by the opposition.

"This government hasn't accomplished a thing when it comes to tax reform in the last three years and it doesn't look like they'll get anything done in the next year either," said Gero Neugebauer, political scientist at Berlin's Free University.

"They got off on the wrong foot and never got it right. It shows how weak they really are," he added.

The setback came just before midnight on Wednesday when the center-left opposition Social Democrats (SPD) and Greens used their veto powers in the Bundesrat, the upper house of parliament representing the federal states, to block the plan.

The SPD and Greens argued there was no scope for tax cuts, especially because they would reduce revenues to states and towns. They said they would have backed tax cuts for ordinary earners if the coalition had raised taxes on higher incomes.

A parliamentary mediation committee, made up of members of both the upper house and the lower house Bundestag spent five hours on Wednesday evening exploring scope for an agreement. But it failed because the SPD and Greens stuck to their guns.   Continued...

Germany's Chancellor Angela Merkel arrives at an European Union leaders summit in Brussels December 13, 2012. REUTERS/Yves Herman