German parties agrees energy tax rises

SPD, Greens, finish coalition talks, paving way for Gerhard Schröder to become chancellor

Germany's Social Democratic and Green parties reached agreement on an "ecological tax reform" over the weekend, after finally overcoming key differences on energy taxation. Coalition talks between the two parties have now been substantially completed, finalising their joint programme for the next four years and opening the way for Gerhard Schröder to become Germany's first Social Democrat chancellor for 16 years.

A deal on energy taxation was a key element in the package unveiled over the weekend. According to the parties, taxes are to be raised on petrol, heating oil, electricity and gas in three steps. About DM36bn (Ecu18.4bn) is to be raised through the tax increases, and will help to finance a 5.7% cut in payroll taxes.

The deliberate shifting of the burden of taxation from labour to environment is the key aim of the ecological tax reform concept. Both parties in Germany's new government support it, though the Greens want to move further and faster. German non-wage labour costs are a higher proportion of gross incomes (42.3%) than in most other industrialised countries. The parties hope to tackle Germany's high unemployment by reducing this figure to 39.9%.

A first round of energy tax rises will be imposed in January 1999. The price of fuel oil is expected to increase by 4 pfennigs per litre and gas used for heating will become 0.32 pfennigs more expensive per kilowatt hour (kWh). Electricity from coal or nuclear power stations will become 2 pfennigs per kWh dearer. Petrol prices are expected to go up by 6 pfennigs per litre,

The rises are significant, but much less than initially demanded by the Greens, who also backed down from their call for speed limits to be imposed on German motorways. The parties did agree, however, to give local authorities a new right to introduce speed limits of 30 kilometres per hour in built-up areas.

Follow Up:
SPD, tel: +49 228 5321; Green Party, tel: +49 228 916 6134.

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