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By Brian Parkin
Berlin, Aug. 22 (Bloomberg) -- German Chancellor Gerhard Schroeder said his government plans to raise corporate taxes to fund rebuilding work in the eastern states after the region's worst floods on record.
Schroeder said he will seek to pass into law a proposal by the BDI industry group, which represents 107,000 businesses, to lift taxes on earnings at companies including Allianz AG and Volkswagen AG to 26.5 percent from 25 percent for one year.
``This show of solidarity by companies is very welcome,'' Schroeder told reporters. ``We have no reason to turn it down.''
Europe's largest economy grew 0.3 percent in both the first and second quarters, a report today showed. The floods, which have claimed at least 17 lives and forced thousands of people to evacuate their homes, have caused damage estimated by the government to be at least 15 billion euros ($14.7 billion).
Ludwig Georg Braun, president of Germany's DIHK industry association, said at least 15,000 companies have suffered flood damage. Of those, 2,500 are ``write-offs,'' he said.
The increase in corporate tax will reap the government about 900 million euros ($874 million), the Finance Ministry said. Schroeder has already announced plans to delay tax cuts worth about 6.9 billion euros scheduled for next year until 2004 to fund flood damage repairs.
He needs the approval of the opposition-controlled upper house of parliament to pass both the increase in corporate taxes and the delay into law. With funds reallocated from the Transport Ministry and other aid, the government has raised 9.8 billion euros for the flood damage, Finance Minister Hans Eichel said.
Rescue Plan
Economics Minister Werner Mueller said the government, together with industry and banks, has forged a rescue package for all companies hurt by the floods. The aid includes immediate financial help for each company of as much as 15,000 euros, cheaper credit though public owned banks and canceling as much as 100 percent of companies' outstanding credit.
Banks have agreed to a two-month moratorium on all flood-hit companies' credit, said Mueller. German taxpayers will foot the bill for canceled credit, he said.
The opposition Christian Democratic Union and Christian Social Union won't block Schroeder's plan to delay tax cuts in the interest of providing swift assistance, said Edmund Stoiber, the alliance's challenger to Schroeder. The parties will overturn that decision if they win the elections, he said.
Bundesbank Profit
Stoiber said the two parties will use Bundesbank profits of 7.7 billion euros to fund flood assistance if they win the elections. Eichel said their plan would boost the budget deficit, already expected to come close to a European limit of 3 percent of gross domestic product this year.
``The flood victims need a clear signal of our readiness to help,'' Stoiber told a press conference. ``In this current difficult economic situation, tax increases are exactly the wrong signal to companies and normal taxpayers.''
The CDU and CSU are leading Schroeder's Social Democratic Party in opinion polls. Even so, the party gained one percentage point in a weekly poll by market research company Forsa this week, while the opposition slipped one point to 40 percent.
``The government is leaving a pretty good and solid impression'' in handling the flood crisis, said Oliver Krieg, a political analyst at research company Emnid. ``If you're asking me whether Schroeder should gain in popularity because of his role in coping with this natural disaster, I would say `yes.'''