The German Council of Economic Experts Urges Further Reforms (November 13, 2002)

page 6 of 6    print version    return to list

previous document      next document

Cut tax rates further, seek to integrate income tax and business taxes

After the phases of tax reform planned for 2004 and 2005, further cuts in tax rates are required with respect to income tax and business taxes if more employment and higher growth are to be sustainable. Existing tax breaks should be lowered.

In the medium term, a fundamental decision needs to be made regarding the integration of business taxes into the income tax regime.
(Proposal 1, sections 374 et seqq.)

[ . . . ]

Elements of a growth program for Eastern Germany

The leitmotif of a growth strategy for the Eastern part of Germany must be to bring about a supply-side improvement in the region’s attractiveness as an investment location. Essential components of such a program are:

– the further expansion of the public infrastructure, especially in the field of transportation; this includes the accelerated completion of interregional highway links and an improvement of the road network in Eastern German towns and cities; the resources earmarked as part of the Solidarity Pact II [Solidarpakt II] should be specifically targeted at extending the municipal infrastructure in potential growth centers; the measures to overcome remaining infrastructural deficits should be documented in the “Progress Report on Reconstructing Eastern Germany” [Fortschrittsbericht Aufbau Ost];

– the strengthening of private-sector investment; the general investment grants paid under the Investment Grants Act [Investitionszulagengesetz] should be phased out, however, in favor of promoting innovation networks and individual investment aid projects within the framework of the German Joint Program for the Improvement of the Regional Economic Infrastructure [Verbesserung der regionalen Wirtschaftsinfrastruktur];

– the pursuit of an employment-oriented wage policy by the social partners; the alarming employment situation in Eastern Germany can only improve if the process of raising East German pay rates to the Western German level is suspended and geared instead to the different development of productivity. (Proposal 4, sections 388 et seqq.)

[ . . . ]



Source of original German text: Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung, Jahresgutachten 2002/3: Zwanzig Punkte für Beschäftigung und Wachstum. Wiesbaden, 2002, pp. V-19.

English translation (not including the first paragraph) is an edited version of a translation taken from the website of the German Council of Economic Experts, “Twenty Proposals for Employment and Growth,” Annual Report 2002–03, first chapter: retrieved on May 20, 2008.