German Finance Minister, Mr Theo Waigel, yesterday presented his 1998 budget and a supplementary budget for 1997 to parliament, saying the measures would contain the costs of soaring unemployment. Speaking after data showed unemployment in August hit a postwar record for the month of 4.37 million, Mr Waigel said the economy was picking up but neither the jobs market nor revenues were following suit.
"Despite satisfactory economic growth, the development on the jobs market and in tax revenues has been worse than should be expected with such growth," he told the Bundestag.
He said data due today would show a rise in economic growth in the second quarter of 2.5 to 3 per cent from a year ago. He reiterated his forecast of 2.5 per cent growth this year, and between 2.5 and 3 per cent in 1998.
Mr Waigel said failing revenues made it all the more urgent for the opposition Social Democrats (SPD) to agree to his plan to axe 30 billion deutschmarks from the national tax bill by cutting income and corporate taxes.
"I call on all responsible politicians to take off their blinkers and find a compromise on the tax reform," he said.
But the SPD finance spokeswoman, Ms Ingrid MatthaeusMaier, said there could be no deal unless the government came up with new tax proposals - which she said Mr Waigel was incapable of doing.
"You say everything is all right. And then come record debts, record social security charges, record bankruptcies and record unemployment," she said.
"This country needs to get moving. But everyone knows that you can't bring that about," she added, also blaming the Chancellor, Dr Kohl for the disastrous state of government finances.
Mr Waigel's 1997 mini-budget and 1998 fiscal package are both designed to cover revenue shortfalls of around DM30 billion in each year due to high unemployment, and keep Germany on track to join Europe's single currency.
The 1998 budget foresees federal spending of DM461 billion, up 0.5 per cent from this year, while the deficit is set at DM57.8 billion, down DM13.4 billion from this year.
The 1997 mini-budget foresees federal spending up DM18.7 billion to DM458.6 billion and a deficit of DM71.2 billion - DM17.9 billion higher than originally planned.
The 1997 package violates the "golden rule" enshrined in the German constitution that new borrowing should not exceed state investment, forcing Mr Waigel to admit that the economy was out of equilibrium due to high unemployment.
"But that does not change our course of medium-term consolidation," he said. "In the 1998 budget and our financial plan we will meet the constitutional limit on new borrowing."
Mr Waigel also appealed in his speech for greater separation between the fiscal competence of the central government and the SPDdominated federal states, which have blocked his tax reforms through their domination of the Bundesrat upper house.
But, for now at least, Mr Waigel must deal with the SPD in a second round of parliamentary mediation talks to try and break the deadlock over his tax reform plans.
The Bundestag will debate Mr Waigel's 1997 and 1998 budgets this week, but final votes will not be held until November.
