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What the CDU would do:

- Increase VAT from 16 to 18 per cent. The resulting €16bn in extra tax revenue to be used to fund a cut in income-based social security contributions so as to lower labour costs and make hiring cheaper.

- Companies would be allowed to deviate from sector-wide wage and working-time agreements.

- Companies with fewer than 20 employees would be permitted to hire and fire workers more easily; legal protection against arbitrary dismissal relaxed in larger companies.

What the SPD would do:

- Intensify the fight against illegal employment.

- Maintain state-financed training and job-creation programmes of the Federal Labour Agency.

- Allow older jobseekers to draw higher unemployment contributions for longer.

- Raise income support benefits in east Germany to the higher western level.

Domestic demand and investment -

What the CDU would do:

- Encourage innovative investment by phasing-out subsidies to non-promising sectors.

- Lower bureaucratic hurdles to investment.

- Relax banking rules that make it hard for small businesses to get loans.

- Rule out fiscal boosts to consumption.

What the SPD would do:

- Up to €600 a year in home repair work by households could be deducted from income tax.

- Introduce a public investment programme for road, rail, and public buildings.

- Allow more scope for public-private partnerships.

The welfare state -

What the CDU would do:

- Health insurance: Members pay a flat contribution regardless of wage; reform to be partly funded by cuts in the Federal Labour Agency’s training and job-creation programmes that would free up €7bn.

- Nursing insurance: Introduce a scheme to evolve from pay-as-you go towards capitalisation.

- Pension insurance: Private and occupational schemes would be encouraged; families with children get a discount on contributions. The goal being stabilisation of current contribution levels. No increase in retirement age for the time being.

What the SPD would do:

- Health and nursing insurance: The “citizen’s insurance” model forces all Germans, including those currently enjoying an opt-out, to pay into the old scheme. Contributions would continue to be based on income, though the base is extended to new income sources hitherto exempted.

- Pension insurance: Private and occupational schemes would be encouraged; early retirement discouraged. No increase in retirement age for the time being.

- Companies would be encouraged to raise wages in order to boost contributions into the social security system.

Taxation -

What the CDU would do:

From 1/1/2006:

- Close tax loopholes to raise €3bn in extra revenues.

- Introduce tax on capital gains from sale of cross-shareholding by large companies that was abolished by the Schröder government to be restored.

From 1/1/2007:

- Cut lower and upper income tax rates from 15 to 12 per cent and 42 to 39 per cent respectively (fully financed by scrapping of tax discounts and subsidies).

- Headline corporate tax rate would be cut from 25 to 22 per cent.

- Broader tax reform to follow.

- Paul Kirchhof, Angela Merkel’s public finance expert in the campaign, has promised the “10-minute tax return”, a radical simplification of income and corporate tax from 2007.

What the SPD would do:

- Introduce a “tax on the rich” - a three-point income tax surcharge for those earning more than €250,000 a year - to generate €1.3bn in extra revenues.

- Headline corporate tax rate would fall from 25 to 19 per cent.

- Carry out broader reform of corporate tax later, possibly introducing a “dual tax system” with different rates for capital and labour.

- Intensify lobbying for corporate tax harmonisation in Europe.

Public finances -

What the CDU would do:

- Budget deficit would fall back below 3 per cent of GDP within four years (though Ms Merkel as said twice in interviews that it might have to do so by next year).

- Bring Germany’s profligate 16 Länder into line.

- Aim to achieve a balanced budget by 2013 - the end of a potential second Merkel term.

What the SPD would do:

- There would be no budget cuts as long as growth remains subdued, but goal of fiscal consolidation would remain.

Education -

What the CDU would do:

- Election programme underlines that schools and universities are the responsibility of federal states; a CDU-led government would be likely to back the introduction by federal states of student fees for undergraduate programmes.

What the SPD would do:

- Support for full-day schooling and national school standards.

- Oppose student fees for first degrees at university.

Research, development and innovation -

What the CDU would do:

- Plan to spend an extra €1bn on research and innovation, paid for by subsidy cuts.

- Support gene- and bio-technology.

What the SPD would do:

- Continue to focus on building elite universities

- Support business investment in research and development

National security -

What the CDU would do:

- Military would be deployed in Germany to deal with terrorist threats.

- Introduce a new co-ordination system between police and intelligence services.

- Create tougher measures against alleged Muslim extremists in Germany, including preventive detention of suspected terrorists.

What the SPD would do:

- Focus on Europe-wide coordination against terrorism and organised crime.

- Give financial support for campaigns against far-right extremism and anti-foreigner abuse.

- Otto Schily, Mr Schröder’s interior minister, has called for expanded powers for the Federal Criminal Office along the lines of those enjoyed by the US FBI; he wants to allow preventive detention but being opposed many in his party.

Foreign and Europe policy -

What the CDU would do:

- Seek to improve ties with the United States, more critical stance likely towards Russia and China.

- Favour a ‘privileged partnership’ for Turkey with the European Union instead of full membership, but would not block opening of talks in October.

- Maintain close ties in EU with France, but greater focus on relations with small EU states.

What the SPD would do:

- Retain focus on gaining a permanent seat on United Nations Security Council

- Support Turkey’s EU membership

- Back diplomacy, not military intervention, to persuade Iran to abandon nuclear ambitions

Energy -

What the CDU would do:

- Allow nuclear power stations to remain open longer

- Have fewer subsidies for renewable energy

What the SPD would do:

- Continue with phase out of nuclear power

- Retain subsidies for coal mining and for renewable energy sources

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