Kohl muddies water over need for tax rises

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The Independent Online
THE GOVERNING Christian Democrats (CDU) ended their annual congress yesterday in a state of great confusion about how to handle the huge financial problems of German unification.

After being subjected to a vehement anti-tax increase diatribe by the Finance Minister, Theo Waigel - invited as head of the CDU's Bavarian sister-party, the Christian Social Union - Mr Kohl unexpectedly backtracked, telling bewildered delegates that his 'hour of truth' speech on Monday had 'not been a back- door for tax increases'.

Mr Kohl had said then that taxes would have to be raised in 1995, to pay off the accumulated debts of East Germany, but that increases could come 'much sooner and be far higher' if everyone did not participate in an unprecedented austerity programme. Yesterday, after an outcry from his coalition partners, industry and economists against any prospect of early tax rises, Mr Kohl said savage expenditure cuts in the west would have to take the burden of meeting the ballooning costs of subsidising the east.

He then, in an embarrassingly muddled closing address, said: 'I am all for saving, but we should honestly say that there is a gap between what we say and what we do.' What precisely the Chancellor intended by drastic spending cuts also rapidly became unclear. Having stated, 'When I say save, I really mean save', he proceeded to explain that this could not involve a too rapid or harsh attack on social benefits or subsidies to uneconomic industries. Perhaps with Britain in mind, Mr Kohl singled out Germany's heavily subsidised coal miners as an example of how cuts would have to be carefully measured against social priorities.

Mr Waigel made absolutely clear his distaste for the discussion on tax increases unleashed by the Chancellor. 'Tax increases can only be a last resort when everything else has been tried,' he said. Otto Graf Lambsdorff, leader of the third party in the governing coalition, the Free Democrats, warned that any tax increases before 1995 would 'finish off the economy in western Germany, and then nothing will function in the east any more'.

Both he and Mr Waigel expressed concern that talk now of raising taxes would reduce the pressure for radical expenditure cuts. Saying that the saving decisions must be taken in the next few weeks, Mr Waigel served notice that government ministers now faced their own hour of truth.