Germany: A stand-off over a new "rich tax" was threatening to derail Germany's grand coalition talks as they entered their final round last night.
Social Democrats are calling for the 120,000 top earners in Germany with incomes above €250,000 to be taxed at 45 per cent instead of 42 per cent, raising €1.2 billion in additional tax revenue.
"One thing is clear. We will only agree to other tax increases during coalition talks when incomes are also burdened," said outgoing SPD leader Franz Müntefering to Bild newspaper.
"Otherwise we cannot explain to pensioners and families why they have had to do their bit." The rich tax is just one proposal to raise extra revenue to fill a budget shortfall of at least €35 billion next year.
The new government, led by Christian Democrat leader Angela Merkel, faces the unenviable task of cutting spending to bring Germany's budget conform to euro zone guidelines by 2007 while trying to stimulate growth at the same time.
"It's like trying to square the circle," said Dr Merkel yesterday.
The CDU leader of the financial round of coalition talks, state premier Roland Koch, suggested an agreement would be reached on the rich tax.
"All those in our society who earn more must contribute to solving the German crisis," he said.
But other CDU politicians rejected the tax and the attempt by the SPD to make the rich tax a condition for the Vat hike they are seeking.
CDU general secretary Volker Kauder remarked that "public blackmail attempts don't bring us any further".
Despite the financial stand-off, the two parties reached agreement yesterday on a wide range of issues, from education and research policy to the long-planned reform of the federal system, blamed for slowing down the passage of new legislation.
The future coalition partners have also agreed to freeze pensions for four years and to cut social welfare and subventions. But the SPD representative said the talks would go right down to the wire at the weekend.
The coalition agreement will then be put to a vote at party conference in mid-November with a view to having a new government in place by the end of the month. "The important financial questions are still ahead of us," said Olaf Scholz of the SPD.