Conservatives Unveil Election Platform

German President Horst Köhler hasn't even given his approval for new elections in the fall, nor have the conservatives won it. But, but that didn't stop the union bloc from naming its election platform released on Monday the "Governing Program 2005-2009." It's a platform the center right says will help them unseat Chancellor Schröder and heal the "sick man of Europe," a name often given to Germany over the past few years due to an economy that cannot get on its feet.

The conservative bloc, consisting of the Christian Democratic Union (CDU) and the Bavarian Christian Social Union (CSU), has laid out a business-friendly program that seeks to cut labor costs and ease rules on hiring and firing employees.

Angela Merkel, head of the CDU and widely expected to beat German Chancellor Gerhard Schröder in a fall election, appears to want to make her mark as a reformer willing to make the tough choices that Chancellor Gerhard Schröder has sometimes been reluctant to.

While the reforms laid out in the document are not as radical as the program of former British Prime Minister Margaret Thatcher (photo) --whom Merkel is often compared to -- they have been generally well received by the business community and economists.

"The program … by the CDU is not a great leap. But it is realistic and credible," said an editorial in the Financial Times Deutschland.

Tax hike, relief

At the center of the program is a planned two percent increase in the value-added tax (VAT), from 16 to 18 percent, which would raise an additional 16 billion euros ($19 billion). That money would be used to cover the shortfall expected after a planned lowering of unemployment benefit contributions, or non-wage labor costs, paid by workers and employers.

Not all are happy with the prospect of raising sales tax, since consumer consumption is weak in Germany and higher taxes run the risk of scaring away already nervous consumers. Big retailers like department-store chain KarstadtQuelle and Metro are concerned a VAT increase may further dent sales that have been falling for four years straight. But CDU General-Secretary Volker Kauder said on German television that there was little choice.

"We have decided to cut non-wage labor costs to boost jobs and we can only do that by raising value-added tax so we can act quickly," he said.

Fewer loopholes, subsidies

The CDU/CSU also plans to lower the top personal income tax rate to 39 percent from 42 percent and the bottom rate from 15 percent to 12 percent on Jan. 1, 2007.

The cuts will be financed by cutting subsidies for first-time home buyers and tax breaks for commuters and for bonuses paid for working on Sundays, holidays and on night shifts.

While the governing Social Democrats have talked about instigating a wealth tax if re-elected, the conservatives are arguing for closing loopholes high-earners enjoy, such as restricting the possibility of writing off losses incurred by some investment firms.

The opposition has backed off from earlier talk about a major reform of Germany's complicated tax system or of reforming the federal structure that many blame for hindering reform in the country. The tax cut plans announced Monday are smaller than those announced in March 2004, when the parties pledged tax relief of around 11 billion euros ($13 billion).

Labor-market reform

Under a conservative government, it would be easier for small and medium-sized firms to hire and fire workers. For new hires, legal protection against unlawful dismissal would be suspended for companies with 20 workers or fewer. The measure is intended to make companies more willing to take on new staff.

Rules would also be put in place making it easier for companies to take on temporary workers. More support would be given for part-time work for people bringing up children or providing nursing care.

The program would make it possible for companies to deviate from sector-wide wage contracts, currently the norm on the German industrial landscape. Firms and workers could agree deals on pay and conditions at the company level.

Foreign policy

On the foreign policy front, a priority of a Merkel-led government would be to revitalize Germany's relationship with the United States.

The traditionally close ties between the transatlantic allies have been severely tested due to Germany's strong and vocal opposition to the US-led war in Iraq.

"A good transatlantic relationship of trust does not exclude differences of opinion but is based on cooperative dialogue in the spirit of friendship instead of on polemical insults," the document says.

The conservatives also say they would work to strengthen NATO and increase the EU's military capability. They want to apply EU budget rules to the letter, but also support a frugal EU budget that takes into account Germany's limited capacity. Germany is the largest contributor to the EU budget.

The CDU/CSU would campaign for a so-called "privileged partnership" for Turkey instead of full EU membership and only take in new EU members, such as Bulgaria and Romania, who strictly meet entry criteria set out by Brussels.

Far enough?

While the platform was generally met with approval from the business world, some economists questioned whether it went far enough to tackle some of Germany's more entrenched problems.

Some have criticized the fact that the program does not address the problem of Germany's large public debt and say it does not go far enough in slashing subsidies.

"I would actually have thought that a program like this would contain proposals for cutting spending," Alfred Boss, an economist at the Kiel-based IfW economics institute, told Reuters.

Even the conservatives' main ally and possible future coalition partner, the liberal Free Democrats, were critical of some points of the platform, particularly the VAT hike. The party's leader, Guido Westerwelle, told the Berliner Zeitung newspaper on Monday that there was still a lot of discussion needed to bring the union bloc back to "the path of free-enterprise rationality."