German business leaders criticised the government for proposals to raise corporate taxes as well as postpone income tax cuts planned for 2003 to finance costs related to the recent floods disaster.
But Finance Minister Mr Hans Eichel defended the steps. He rejected criticism that money raised in 2003 would come too late to help the flood victims, saying there would have been no other areas in next year's budget that could be cut.
"Every tax increase is the wrong thing for the economy and poison for economic growth," said Mr Dieter Hundt, president of the employers' association. "That includes the planned increase in the corporate tax as well as the next increase in petrol taxes."
After talks with industry chiefs and state premiers to discuss the flooding crisis swamping the east, German Chancellor Gerhard Schröder said on Thursday he would raise corporate tax by 1.5 percentage points for a year to 26.5 per cent as part of the relief plan.
His opposition challenger for re-election, Mr Edmund Stoiber, wrong-footed earlier when Mr Schröder proposed delays to tax cuts to fund flood relief, offered a confusing rival plan which involved using Bundesbank profits to help pay for the billions of euros of damage. That prompted Bundesbank President Mr Ernst Welteke to warn that the plan put Germany at risk of breaching EU budget deficit rules. Mr Welteke said most of the Bundesbank money had already been used to pay down debt.
Mr Michael Rogowski, president of the German industry association (BDI), again rejected Mr Schröder's assertion business leaders had offered to pay higher corporate taxes for one year.
"Under the current miserable economic conditions no one is offering to accept a tax increase," he said. "If the government is interested in solidarity it should look for ways to cut spending elsewhere."
Mr Eichel said in an interview with yesterday's Frankfurter Allgemeine Zeitung that delaying the tax cuts by one year would not have a negative impact on the economy, as some have claimed.
"It is not going to harm the economic upturn already under way," Mr Eichel said.
Separately, the government denied a report in Der Spiegel magazine saying their plans to provide quick financial aid to flood victims would lead to higher than expected debts in 2002.
- (Reuters)
