BERLIN, June 30 - German Chancellor Gerhard Schroeder's programme of sweeping income tax cuts was broadly welcomed on Monday while fears of more damage to Europe's largest economy faded with the collapse of strikes in the east. Commentators including Bundesbank chief Ernst Welteke, industry groups and the mass-circulation Bild daily hailed the tax cuts unveiled by Schroeder on Sunday, aimed at kickstarting the economy without breaking European Union budget rules.
"We want a signal of revival to go out from this weekend to the people in our country. This government is improving the conditions for more growth," Schroeder said. German Chambers of Industry and Commerce head Martin Wansleben told the Frankfurter Allgemeine Zeitung: "It's a good thing the government has signalled its intention to cut taxes. The government needs to slim down" Bundesbank President Ernst Welteke, a governing council member of the European Central Bank, also gave his blessing. "If bringing forward the tax reform doesn't mean the deficit will increase significantly, this is overall a good thing," he told reporters on the sidelines of a meeting in Basel. Bild awarded Schroeder a "tax cut medal" and said the month of June, during which Schroeder steered the Social Democrats onto a reform path, was the first sunny month for Schroeder since his re-election last September.
German retail group Karstadt AG , the German retailer most exposed to the German economy, rose two percent in early trade on the DAX index of blue-chip stocks on news of tax cuts, outstripping its European peers which were down. WELCOME END OF STRIKE
In a commentary, Bild said the decision by the IG Metall trade union to end strikes, despite failing to win shorter hours for engineering workers in the former east meant the Chancellor no longer had anything to fear from the unions -- traditional supporters of the Social Democrats. The stoppages hurt Germany's car industry, which accounts for 10 percent of total industrial output and hundreds of thousands of jobs. They also dented the image of the former east, still mired in economic stagnation 13 years after reunification despite huge cash transfers from the west. Schroeder said he was relieved the strike was over. "Its economic effects would have tended to exacerbate the difficulties that I have mentioned," he said. IG Metall held crisis talks through the night to discuss the ramifications for the trade union and its leadership. The tax cuts would be financed by subsidy cuts, new borrowing and possibly revenues from the sale of shares in former state monopolies. Schroeder said Germany should still be able to meet EU budget rules, which require that its deficit stays under three percent of gross domestic product. Germany exceeded that limit in 2002 and is expected to do so again this year.
The decision to bring forward by a year tax cuts scheduled for 2005 was taken at a cabinet meeting at a secluded country hotel. The government had estimated the extra cuts were worth 18 billion euros ($20.5 billion), but a finance ministry source said the relief would actually be 15.6 billion euros. They come on top of tax cuts already taking effect in 2004. Together they bring the top rate of income tax down to 42.0 from 48.5 percent and the bottom rate to 15.0 from 19.9 percent. Much now depends on the conservative opposition, which controls the Bundesrat upper house that would have to approve the tax cuts. The opposition used its majority to block similar subsidy cuts earlier this year and no movement is expected before a local election in Bavaria on September 21.//