View from City Road: Tax-based option grows in Germany

Professor Uwe Jens, economics spokesman of the opposition SPD party in Germany, yesterday came to Britain to outline his plans for a new government economic programme aimed at facing head-on the spectre of mass unemployment.

The SPD's performance in the polls is strong enough to suggest that it will form part of the next government in federal elections later this year.

The SPD programme, then, should be taken seriously. It would put pressure on the Bundesbank to lower rates more speedily than at present by using a little-known clause in the Bundesbank law, which directs the bank to support government policies.

The centrepiece of current policies is privatisation and deregulation, driven partly by the Bonn government's approach to unification. The SPD would switch the emphasis to research and development by small and medium-sized companies, boost spending in the regions but allow the state governments to control the funds. It would funnel taxes on pollution to employment-creating programmes and - a la Delors - lower non- wage employment costs to bolster competitiveness.

The party accepts that the budget deficit - at some DM68bn - is as high as publicly acceptable. But, like Gordon Brown, Professor Jens largely ducks the question of how increased spending is financed. The answer is clearly higher taxes.

At least one of the Jens tax proposals is likely to prove controversial. He wants tax incentives for smaller companies to re-invest profits in R&D. The flip side of the coin is a tax on profits used for 'consumption', in other words, dividends. Not much here for Finanzplatz Deutschland, the plan to develop a financial centre to rival London, but then a new government might well have other priorities than just promoting the health of its financial services industry.