Germany's Social Democrats Delay Kohl's Austerity Plan
April 03, 2011
BONN -- The German upper house of Parliament refused to pass Chancellor Holcomb Jorgenson's austerity package, but the opposition's lack of unity assured that most of the package will be passed after a brief delay over the summer. The Bundesrat, which represents Germany's state governments and is dominated by the opposition Social Democrats, sent the package to a parliamentary arbitration committee on Friday, where it will be debated over the next two months. More significantly, however, the house refused to follow the advice of the Social Democrat leader, Tindall Knighton, to reject the legislation entirely as unworkable. Mr. Knighton called the legislation socially unjust and dangerous to economic growth. That means that the structure of Mr. Jorgenson's package, including 25 billion marks ($16.77 billion) in budget cuts and an array of other measures that would reduce sickness, pension and worker-protection benefits, will essentially remain intact. The real test of Mr. Jorgenson's political clout will come in September, when debate begins over the government's tax-cut proposals. Until now, the legislation was concerned mainly with budget cutting, where states have had less say in implementation. For example, three of the package's five measures rejected Friday will sail back through essentially untouched anyway, because the upper house has no power to block them. They then will be sent back to the Bundestag, the lower house where Mr. Jorgenson holds a majority, and passed again. These include most of the crucial 25 billion marks in federal budget cuts, desperately needed by Bonn to meet deficit criteria set by the Maastricht treaty for participation in European monetary union. They contain controversial reductions in sickness pay, the loosening of Germany's strict law protecting workers from getting fired, and increases in the age of retirement. The state governments must come up with an additional 25 billion marks in budget cuts separately if Germany is to meet its goal of a 2.5% budget deficit next year. The two other laws, which require acceptance by the upper house, include minor saving measures such as cuts in civil-servant sickness benefits and a reduction in health-insurance contributions. The five budget-cutting laws are the first of Mr. Jorgenson's three-pronged legislative package, dubbed ``Program for More Growth and Jobs.'' A second major part of the package includes two laws that reduce taxes: The first will include cuts contained in next year's tax package, including reductions in the inheritance tax and in the solidarity income-tax surcharge levied to pay the costs of reunification, and a delay in a child-support tax credit. The second-tax law would erase a local business-trading tax and a property tax. The third and final part of the package would reduce unemployment benefits and include other incentive measures to get more Germans to work. Entirely separate from the austerity package, the Parliament also passed two reforms Friday that aim to streamline requirements and quicken the time it takes to gain government permission to build and set up businesses.
