German Parliament Approves Tax Reform Measures

October 20, 2003

The Bundestag, the Lower House of the German Parliament, has approved a wide-ranging series of proposals from Chancellor Schroeder to bring economic relief to German business, and to try and reverse the country’s recent economic decline.

An important part of the bill, which now goes to the upper chamber, the Bundesrat, for approval, contained provisions to allow Germany’s life and health insurers to write off of their tax bills the equity writedowns they’ve been forced to take on their investments over the last two years. It could save companies such as Allianz and Munich Re hundreds of million in taxes. However, it hasn’t been enacted yet.

While Chancellor Schroeder’s Social Democrats, in alliance with the Greens, have a majority in the Bundestag, they don’t have one in the Bundesrat, which is controlled by the opposition Christian Democrats and their allies. They’ve said the proposals don’t go far enough, and have indicated that they will make even more radical proposals to reduce Germany’s social welfare costs and modernize its labor protection laws, which they see as stifling the economy. This could cause a deadlock in which none of the proposals would be enacted.

Schroeder has staked his political life on the measures, and has gone against the strong labor union contingent in his own party to do so. He even left an important European Community meeting (surprising everyone by leaving French President Jacques Chirac in charge of the German delegation) to return to Berlin for the crucial debate.

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