Germany's governing SPD party has proposed raising income tax on high earners to fund a second, €40bn economic stimulus package, setting up a showdown with coalition partner the CDU on how Berlin should best respond to the financial crisis.
In a 19-page paper leaked to German media yesterday chancellor-candidate Frank Walter-Steinmeier, foreign minister, laid out his party's plans to create a €10bn ($14bn, £9.6bn) investment fund to invest in kindergartens, schools and sports facilities. The party said this infrastructure programme would help protect jobs. Although most of the stimulus should be funded through new government debt, part could be financed by raising tax on high earners, Mr Steinmeier said.
The tax proposal, which is unlikely to find broad support, came as the coalition leaders prepared to meet today to thrash out a deal on a second fiscal stimulus package to help boost consumption and ensure the country avoids a deep recession. Germany has come under pressure from its neighbours to do more to stimulate domestic demand after an initial €12bn package of measures fell flat.
Chancellor Merkel was last night due to meet the leader of the sister party to the CDU - the CSU - which has put pressure on her to agree tax cuts.
In a new year address, Mrs Merkel said the government would ease the burden on all who pay taxes and contributions "wherever it is justifiable", suggesting any tax cuts may be limited. Finance minister Peer Steinbrück, SPD, has fiercely rejected calls to cut taxes.
The call to raise the top rate of taxation has little chance of finding approval among Mrs Merkel's CDU. However, it is likely to be well received by the SPD's left flank, some of whom have felt marginalised since Mr Steinmeier - a centrist who helped conceive the unpopular Agenda 2010 economic reforms - took over as leader in September.
Under the SPD's tax proposals, single people earning more than €125,000 a year and married taxpayers earning more than €250,000 would see their tax rate increase from 45 per cent to 47.5 per cent for a maximum period of two years, raising around €1bn.
In an interview with the Süddeutsche Zeitung, Mr Steinmeier described the call to raise taxation on high-earners as "socially just" but also referred to it as "a minor aspect" of the programme. The party's package also included help for the car industry, on which one in seven German jobs depend.
