Germany's parliamentary election campaign has effectively opened this week with the collapse of cross-party talks followed by a failure to agree on taxation reform. The tax changes had been talked up strongly by the government - beyond the intrinsic importance of the money involved - but in keeping with the issue's symbolic and political significance. It follows that the collapse of the project could be very damaging for the chancellor, Dr Kohl - unless, and this is his instinct - he can successfully shift the blame on to the opposition Social Democrats, who steadfastly refused to deliver their majority in the Bundesrat in favour of the reform package.
The changes would have reduced company taxation in the name of greater international competitiveness and in an attempt to reduce Germany's high structural unemployment. Personal taxation would have been brought down from 53 per cent to 39 per cent at the top level and at the lowest from 25.9 per cent to 15 per cent. Tax breaks would have been altered and compensatory arrangements proposed to retain financial buoyancy. The Social Democrats objected to such an emphasis on relieving companies at a time when profitability is high and argued that the package was unfairly tilted towards the better off. Much of this could have been resolved by arbitration during previous years when cross-party consensus was a more active principle. But on this occasion the Social Democrats, their eyes very firmly on the elections in September next year, refused to co-operate.
This has infuriated Dr Kohl and his finance minister, Mr Waigel. But there is not much they can do about it. They are now going into the election year with no big domestic reform programme and with a number of important questions to be answered about the political incompetence with which they handled the taxation issue. Several employers' spokesmen have been scathing about this and there is much talk that big business will shift more of its investment overseas. Dr Kohl himself is left looking politically threadbare as a result. The effects will be followed carefully elsewhere in Europe, notably for the light they throw on Germany's intentions with regard to economic and monetary union. The tax package was not directly related to EMU and its failure will not jeopardise the government's efforts to ensure that Germany adheres strictly to the convergence criteria. It remains to be seen whether the outcome and the diminishing regard in which it shows up Dr Kohl, will affect his determined advocacy of EMU. He has accused several Social Democrat leaders of being less that wholeheartedly in favour of it. If EMU becomes more of a political football in the campaign, it will complicate the crucial decision-making about which countries will qualify. On balance it must be assumed both that Germany will qualify and that the EMU project will go ahead. But recent events make it clear that if currency union does indeed come to pass on time it may be in the absence of Dr Kohl and his coalition. The chancellor's international reputation has held up much longer than his domestic one - in tribute to the central role he has played in Europe. But this year's elections in Britain and France have demonstrated that no one is politically indispensable.