German minister looks to tax cuts as economy contracts

BERLIN (Reuters) - Germany needs a package of tax cuts and other measures to shore up economic growth in the long term, Economy Minister Peter Altmaier said in an interview published on Sunday, days after the country posted its first economic contraction since 2015.

Altmaier, a member of Chancellor Angela Merkel's governing conservatives, said he was focused on cutting high German corporate taxes following tax cuts in the United States, Britain and soon France.

"The corporate tax in Germany is now higher than in other industrial countries," Altmaier told the Welt am Sonntag newspaper. "That is a disadvantage and puts jobs at risk. That is why a medium-term cut is necessary."

 

He proposed using half of the increase in tax revenues to fund the tax cuts and said it was imperative to ensure that contributions for social benefits did not grow beyond 40 percent of a person's gross salary.

Gross domestic product (GDP) in Europe's biggest economy fell 0.2 percent in the third quarter from the previous three months, according to data released on Wednesday by the Federal Statistics Office.

At the time, Altmaier said the contraction was not "a catastrophe" and his ministry called the slowdown a temporary phenomenon that occurred as car companies struggled to adjust to new pollution standards known as WLTP.

Welt am Sonntag said Altmaier, a close Merkel ally, hoped to parlay concern over the downturn in the third quarter to gain support for tax cuts from Finance Minister Olaf Scholz and his left-leaning Social Democratic party (SPD).

"We need clarity about relief fo workers and industry, including the stepwise reduction of the solidarity tax for everyone, less bureaucracy and more innovation," Altmaier said.

Clemens Fuest, head of the Ifo economic institute, said the German coalition government had missed opportunities in recent years to strengthen economic growth.

"It's important to create new spots in kindergartens, but policymakers should not call those investments at a time when it is not making needed infrastructure investments in rail routes or power lines," Fuest told the Welt am Sonntag newspaper.

He also faulted the coalition government for its piecemeal approach to digitalisation, and called for efforts to strengthen the longer-term competitiveness of the German auto industry, instead of focusing solely on environmental protections.

(Reporting by Andrea Shalal)