Lafontaine sparks revolt in provinces

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THE GERMAN government that wants to harmonise taxes across Europe has fallen into disharmony at home, its tax plans booed by its very own audience.

In an unprecedented rebellion, powerful regional grandees of the Social Democrat party are questioning the competence of their Bonn colleagues, and even threatening to block their government's much maligned reforms.

From the left-wing bastion of Schleswig-Holstein in the north to the modernising stronghold of Bavaria, provincial party bosses have united in rubbishing their government's efforts to date. As Oskar Lafontaine, the German Finance Minister, exhorts the rest of Europe to follow his lead in creating jobs, his own party is loudly proclaiming that Mr Lafontaine's policies do not work.

By yesterday, the prime ministers of all the biggest Social Democrat Lander had joined the revolt. Led by Wolfgang Clement, the Prime Minister of North Rhine - Westphalia, they are demanding the scrapping of tax reforms unveiled in the first weeks of the government, and the introduction of measures to help business.

Mr Clement, who leads Germany's most populous Land, was installed in his job earlier this year with the help of Gerhard Schroder. Yet in a nine-page letter addressed to his mentor and leaked to the press, he attacked the tax reforms as inadequate, and urged him to deliver on election promises. The most important of these, he wrote, was a pledge to stimulate employment by reducing the tax burden of enterprises.

In the latest government blueprint, some 15bn German marks is to be cut from taxes over several years. To finance the giveaway, the price of energy is to be increased by a so-called "ecology tax" sponsored by Mr Schroder's junior coalition partners, the Greens.

The plans have been reworked many times, and there is evidence of improvisation. A tax on casual jobs earning no more than DM620 a month, for instance, was scrapped inexplicably by Mr Schroder during a parliamentary appearance. Without informing the Greens, the Chancellor replaced those taxes with a social security surcharge. While industry was pleased with the ad hoc changes, the Greens in particular felt slighted.

Critics feel the benefits of the package add up, at best, to zero. The biggest losers are the Lander, which are asked to underwrite Bonn's limited generosity.

Lower Saxony, the Chancellor's home region, will have to find an extra DM450m every year, according to its Prime Minister, Gerhard Glogowski. Mr Glogowski is another Schroder protege, but describes the Bonn government's performance so far as "unnecessarily poor". The Chancellor's closest ally is turning into his bitterest enemy. In a newspaper interview yesterday, Mr Glogowski threatened to block the reforms in parliament's upper house, the Federal Council.

That might not be such terrible blow to Mr Schroder. The tax reforms are Mr Lafontaine's work, with a little help from the Greens. If they prove to be wrong, as almost everyone in Germany agrees they will, the ambitious Finance Minister will have to take the blame.

And the policies that are drawing the fire are known to be Mr Lafontaine's. Which leads cynical observers to wonder whether it is coincidence that the government's loudest critics happen to be Mr Schroder's closest friends. Or is poor Mr Lafontaine being set up for a fall?

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