German budget pledges to grow economy, create jobs

Thu, Jan 21, 1999, 00:00

Germany's Social Democratic Finance Minister, Mr Oskar Lafontaine, unveiled his first budget yesterday, promising to cut unemployment and maintain financial stability. Mr Lafontaine plans to spend 488 billion deutschmarks (#196.5 billion) during 1999 but he will keep to the DM56 billion deficit of Dr Helmut Kohl's centre-right government.

Speaking to reporters after the cabinet approved his plans, Mr Lafontaine said that the governing coalition of Social Democrats and Greens inherited a difficult financial situation when they came into office in October.

"We have to admit that the upward economic trend weakened at the turn of the year. But the growth-promoting measures of the new federal budget will help the economic upswing during the rest of the year," he said.

One-third of the total budget will go to projects involving job creation and training, including DM100 billion towards reviving the economy in the east of the country, where unemployment is highest. Schools and universities will benefit from increased spending and more money will go to scientific research but Mr Lafontaine was at pains to stress that he would stick to strict spending limits.

"The 1999 budget is a budget for new jobs and financial stability," he said.

The fight against unemployment, which stands at four million in Germany, will be crucial to the success of the Social Democrat-led government, which has pledged to take at least a million people off the dole during its first term. Talks between the government, business representatives and trade unions are under way to establish how best to boost employment, but a slowdown in economic growth could imperil the government's plans.

Opposition politicians accused the finance minister of creative accounting and claimed that the real rise in spending was 6.8 per cent rather than 1.7 per cent, as the government claims. The Christian Democrat leader, Mr Wolfgang Schaeuble, claimed that the new government was "much more generous in spending taxpayers' money" than its predecessor had been. And he pointed out that Mr Lafontaine needed to carry over DM10 billion in privatisation profits from 1998 to fill holes in his budget.

Mr Lafontaine blamed Dr Kohl's government for the poor state of the country's finances and claimed the Christian Democrats had painted a misleading picture of Germany's economic prospects.

"The last government was too positive in its outlook for the economy," he said.

Some economists predicted yesterday that Germany's worsening economic outlook could force the government to increase taxes but Mr Lafontaine insisted that, on the basis of current forecasts, no tax rises would be necessary. He also denied that his plans would be derailed by a constitutional court ruling this week allowing married couples with children to write off the cost of childcare against tax.