Monday, August 29, 2005

Flat Tax Debate Continues...

CDU Deutschlands

In the German election campaign, the flat tax issue has suddenly become one of the most discussed questions. I'm sure it wasn't planned that way, but that's the way it has turned out.

When the CDU meet in Dortmund yesterday for their election campaign congress, it was obvious that the selection of tax expert Paul Kirchhof for the Merkel team had very strong support from the CDU grassroots.

Different grandees - notably Bavaria's Edmund Stoiber - have made clear that they have no love lost for the Kirchhof idea of a 25 % flat income tax for Germany. But this hasn't stopped the debate.

In Dortmund, Angela Merkel praised Kirchhof as a man of courage without going into any details on the tax issue. But the message was clear enough.

And Kirchhof notes that the announced CDU/CSU plan for tax cuts in the years ahead will be his priority, and what he is discussing is what would be desirable thereafter. CDU financial expert Friedrich Merz has joined in and said that it should certainly be both possible and desirable to move in that direction, although the timing will be a difficult issue.

For Paul Kirchhof it is the tax competition coming from the Baltic countries, Slovakia and others and the success these countries have had that makes it imperative for Germany to move forward more radically.

The CDU/CSU plans already foresees lowering the top tax from 42 to 39 %, but that's clearly not enough in the present sitiuation. Europe is changing fast.

It will take time for Germany to change, but the Kirchhof debate has certainly injected a new urgency in the debate.

In the meantime we might well see Poland taking a big jump in the same direction after its September election...