BERLIN, July 3 - German Chancellor Gerhard Schroeder said on Thursday an economic reform programme he set out three months ago was bearing fruit and plans to accelerate tax cuts to 2004 would support first signs of a recovery. "We don't want only to send a short-term signal for recovery. We are not only telling people to spend their money. We are telling them it pays to work and live in this country, to invest and to consume," Schroeder told parliament.
Schroeder said the government's proposal to bring forward to 2004 15.5 billion euros ($17.89 billion) of tax cuts due to take effect in 2005 was intended to support signs of a recovery, citing sentiment indices and evidence domestic demand is beginning to pick up. The tax cuts will hand 10 billion euros back to German small and medium-sized firms, he said. "We are sending a clear signal at a time of a weak economy -- less taxes for more investment and more jobs," Schroeder said. Schroeder said the tax cuts should also help cap risks, singling out the euro's recent rally as a cause for concern. Europe's largest economy is teetering on the brink of a recession. Only exports saved it from contracting last year.
"There are signs that are a cause for concern, such as the changed relationship between the euro and the dollar, which is naturally making more difficulties for exports than we would wish," Schroeder said. "For this reason it's a question of strengthening the encouraging signs to make sure that they, and not the downbeat signals, come to dominate," he said. Schroeder said since he unveiled his package of reforms dubbed Agenda 2010 in March there had been a sea-change in attitudes in both Germany and abroad. "It has become clear that people in our country want movement and accept that is necessary," Schroeder said. He thanked the conservative opposition for their willingness to compromise on health reforms that have already been proposed and appealed for their further support over the tax cut, and pension and labour reform bills that will follow in the autumn.
The opposition controls the Bundesrat upper house of parliament that could block the tax cuts and many reforms.//