Scholz blow as coalition talks rule out tax increases

Chancellor-in-waiting faces compromise as FDP stands firm on strategy to reboot German economy

THE pro-business party set to be a coalition partner in Germany’s new government said it would not cross its “red lines” on raising taxes, in what was a clear blow to the socialist chancellor-inwaiting Olaf Scholz.

The Right-of-centre Free Democratic Party (FDP) has advocated slashing taxes across the board to stimulate economic growth as Germany seeks to climb out of the pandemic-induced economic slump.

“Our negotiating partners know our demands – no tax increases and no relaxation of debt rules,” Volker Wissing, the FDP general secretary, said yesterday as three parties were locked in coalition negotiations.

The other parties in the talks, the Greens and Mr Scholz’s Social Democrats (SPD), both ran their campaigns on raising taxes on top earners and introducing a wealth tax.

Mr Scholz remains on course to lead the Left back to power in Germany for the first time in 16 years. Despite talk of a “new departure” and “change”, the chances are Germany’s next government will not stray that far from the centrist path set by Angela Merkel.

Mr Scholz presented himself to voters as the natural heir to Mrs Merkel.

Now he appears set to adopt another strategy straight out of the Merkel playbook, using coalition politics to keep his own party in check.

Mr Scholz was flanked by the hardleft at the coalition talks this week. The hard-left hoped to exploit Mr Scholz’s popularity and dreamed of a Left-wing coalition with the German Greens and the Left Party, a successor to the East German communist party.

But Germany did not swing to them. Mrs Merkel’s Christian Democrats (CDU) lost votes, but so did the Left, and the FDP made major gains.

The SPD’S only viable path to power

‘Power politics alone is not enough … I became a politician because I want to make the world better’

now is a broad coalition with the Greens and the FDP.

Any coalition that brings them together will be based on compromise. Mr Scholz will have to manage it while dealing with an intake of new MPS that has skewed the SPD further to the left. But that compromise may be exactly what he needs to take control of his own party.

Asked by Der Spiegel whether it could mean he ends up the weakest chancellor in years, Mr Scholz replied: “Nah”.

He said; “Power politics alone is not enough ... it is worth nothing if you don’t want anything. I became a politician because I want to make the world a better place.”

Little detail has leaked from the new talks so far, but it appears the FDP has already dug in its heels against the SPD and Greens’ campaign promise to impose a speed limit on Germany’s motorways. Mr Scholz is said not to be particularly keen on a speed limit anyway but the opportunity to see off some of his party’s more radical policies will interest him more.

At the same time the FDP is against reforming Germany’s strict constitutionally binding borrowing rules, something that would appear to tie the next government’s hands as it seeks to invest in a green energy transformation.

Acknowledging the gulf between the parties on taxation and debt, Robert Habeck, Green party co-leader, said at the weekend that “significant differences” still exist between the parties.

Meanwhile, Mrs Merkel yesterday said Israel’s security will remain a top priority for “every German government”. Mrs Merkel, who held talks is Israel with prime minister Naftali Bennett before visiting the Yad Vashem Holocaust memorial, was confident that whoever followed her will feel equally committed to Israel’s security.

Mr Bennett described her as “Europe’s moral compass”, acknowledging her support for Israel.