Germans plan to cut taxes by up to €10.2 billion

THE German government is preparing to cut taxes by 20 billion deutschmarks (€10.2 billion) in 2002, a third more than initially planned, according to a draft of tax plans due to be presented to a parliamentary committee today. A number of tax loopholes that were due to be ended will now either remain open or only be partially closed.

The tax reform plan, which covers a period of three years, is due to be debated on Thursday. Mr Klaus Mueller, finance expert for junior coalition partners, the Greens, said the changes were made on the basis that the German economy, at the moment struggling with weak growth rates, would have picked up by then.

"The higher cuts can be financed because in 2002 overall tax revenues will be stable," he said. The Chancellor, Mr Gerhard Schroeder's government will be facing re-election in 2002. Mr Mueller said one change in the reviewed tax plan would be that a proposed ban on write-offs against expected corporate losses would now be delayed.

Business has complained that it is being made to pay for the brunt of Mr Schroeder's tax and welfare reform, which is aimed at giving more cash to low and average-income families.

At the same time as the Germany parliamentary committee reviews the tax proposals, financial markets will continue to watch the movement of the euro nervously. Although the euro recovered against the dollar and sterling in the latter half of last week, at less than €1.11 it is still well down on its original level of €1.17 against the dollar.