Tags: Germany | Cut | Welfare

Germany to Cut Welfare, Slash $96 Billion by 2014

Tuesday, 08 Jun 2010 08:33 AM

Germany will cut welfare benefits, introduce new taxes and shed government jobs to save as much as 80 billion euros ($96 billion) through 2014 and set an example for the rest of Europe, Chancellor Angela Merkel said Monday.

The wide-ranging savings package finalized by the Cabinet includes trims in social programs such a subsidy for new parents who stay home, more taxation for the nuclear power industry, and delaying the building of a replica of a Prussian palace in the heart of Berlin.
Merkel said as many as 15,000 federal government jobs could be shed through 2014.

In addition, the government wants to levy a special charge on passengers flying from German airports until aviation is included in an international carbon dioxide emissions trading scheme. Looking farther ahead, the Cabinet said it hopes to save money by reforming the military and will consider trimming the 250,000-strong force by up to 40,000.

The new nuclear tax is aimed at netting 10 billion euros throughout 2014, but the bulk of the savings will come from the welfare budget — a total of 30 billion euros.

Most of the measures still have to be approved by parliament, where Merkel's conservative government has a majority.

While Germany's finances are in a better state than those of many others in the 16-nation euro zone, its budget deficit is still above the maximum allowed by European Union rules and it has been particularly keen to preach the virtues of solid budgets.

"Germany, as the biggest (European) economy, has the outstanding task of setting a good example," Merkel said at a news conference after her Cabinet thrashed out the package at a two-day meeting.

"I must say that the last few hours were a singular show of strength — about 80 billion euros needs to be saved though 2014 so that our financial future can once again stand solidly," she added.

"The last few months have shown — in connection with Greece and other euro states — what outstanding significance solid finances have, that they are the precondition for being able to live in stability and prosperity," Merkel said.

Germany had a budget deficit of 3.1 percent of gross domestic product last year. It is expected to exceed 5 percent this year, well above the European Union's 3 percent threshold, and Berlin says it aims to comply with the rules again by 2013.

In addition, even before the euro zone debt crisis the government had anchored a so-called "debt brake" in the constitution that forces it to cut back borrowing over the coming years.

Though the entire savings through 2014 amounts to some 80 billion euros, the calculation is made on a cumulative basis incorporating the savings from previous years, said UniCredit economist Alexander Koch.

Adding together only each year's new savings, the figure comes to 26.6 billion euros, he noted — "somewhat less than they originally planned" in order to get the budget deficit back within the EU rules, he said.

Given that the country is still trying to get on its feet after the economic downturn, it was also positive that there were no major tax increases in the plan, Koch said.

Merkel's center-right coalition came to power last October pledging tax relief, but recently shelved tax cuts for at least the next two years.

In drawing up its package to tackle the deficit, it steered clear of cutting education spending and increasing value-added or income tax.

Planned overall spending in this year's budget is 319.5 billion euros.
Opposition politicians and union officials criticized the prospect of cutbacks on social spending.

"This is about more redistribution from the bottom to the top," said Gesine Loetzsch, a leader of the opposition Left Party.

The head of Germany's labor union federation, Michael Sommer, argued earlier Monday that Germany should increase taxes for the rich and introduce a financial market transaction tax to help narrow its budget gap.

"In a situation like this ... we must do everything to stabilize the state's finances — and that means those who have more really being drawn on to finance this state," Sommer said on Suedwestrundfunk radio.

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Germany will cut welfare benefits, introduce new taxes and shed government jobs to save as much as 80 billion euros ($96 billion) through 2014 and set an example for the rest of Europe, Chancellor Angela Merkel said Monday. The wide-ranging savings package finalized by the...
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2010-33-08
Tuesday, 08 Jun 2010 08:33 AM
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