German coalition squabbles over plan to aid ‘fragile’ economy

Finance Minister Christian Lindner attends a news conference to present key points of planned legislation to offset high inflation in Berlin, Germany August 10, 2022. REUTERS/Lisi Niesner

BERLIN, Aug 10 (Reuters) – The economic situation is deteriorating and the outlook is fragile in Germany, Europe’s biggest economy, its finance minister said on Wednesday, defending his plan to raise income tax thresholds in response to the surge in inflation.

The German economy stagnated in the second quarter as the war in Ukraine, soaring energy prices, the pandemic and supply disruptions brought it to the brink of a slowdown. Inflation runs at 8.5%. Read more

“Our country’s economic prospects have become fragile,” Finance Minister Christian Lindner of the Free Democratic Liberals (FDP) said as politicians from the major parties in the ruling coalition took aim at his proposed inflation adjustment.

“The economy is deteriorating,” he told reporters in Berlin.

Outlining his plans, Lindner argued that if the government did nothing, 48 million people would be hit by 10 billion euros ($10.2 billion) in tax hikes effective from January 1 of the year. next year due to rising inflation. Read more

Lindner wants to avoid “secret tax increases” with his plan, which he says would relieve the “broad middle of society”.

A spokesman for Chancellor Olaf Scholz spoke of his “good will” for Lindner’s initiative, adding: “The concept which Mr Lindner presented today is part of a larger overall concept which needs to be discussed and developed in the coming weeks”.

The plans have already been criticized by members of the coalition government‘s two major parties, Scholz’s Social Democrats (SPD) and environmentalists the Greens.

Achim Post, deputy chairman of the SPD parliamentary group, told Reuters that Lindner’s plans “still need to be improved” and that the aid should “primarily target people with low and middle incomes”.

“The proposed increases to the tax-free Basic Allowance and Child Benefit are steps in the right direction, but are not enough,” Post said, suggesting instead direct payments to provide targeted relief to low- and middle-income households.

The broad three-party coalition, which took office last December, is a first at the national level and tensions have also emerged between the partners over Scholz’s leadership of the Ukraine crisis. Read more

($1 = 0.9783 euros)

Reporting by Andreas Rinke, Christian Kraemer and Paul Carrel, editing by Kirsti Knolle and Mark Heinrich

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