Tax Hike in Germany To Dent Citizens' Pockets

In a poll, half expect a reduced living standard

THERE'S nothing like new taxes to raise the level of domestic discontent.

In Germany - a nation accustomed to paying high taxes to buy social harmony both at home and across Europe - the reimposition of a levy to help finance the high cost of 1990s reunification is stirring up antitax passions.

Such feelings serve as a powerful reminder to Germany's current and future leaders that there are limited reserves of popular support for financing massive political and social projects, including the European Union and the country's fabled welfare safety net.

Entrepreneurs and opposition politicians suggest that the new tax, dubbed the ``solidarity surcharge,'' will depress domestic consumer demand and endanger Germany's economic recovery. They point to the disappointingly flat retail sales figures registered during the Christmas season.

``The introduction of the solidarity surcharge is an additional burden to economic development,'' Rudolf Scharping, leader of the opposition Social Democratic Party, recently wrote in the economic daily Handelsblatt. It ``crosses the threshold of tolerance.''

Much of the general population appears to share Mr. Scharping's view. One-half of the 1,300 people recently polled by the weekly magazine Focus said they expect their living standards to decline because of the new tax burden.

The solidarity tax requires citizens to pay a 7.5 percent surcharge on their 1995 tax bill. In addition, a new tax to pay for long-term nursing-care insurance will gobble up a half-percent of workers' net taxable income. Overall, almost one-half of Germans' gross incomes now goes to paying various taxes.

The new burdens mean someone earning the equivalent of about $30,000 annually will end up paying about $450 extra into government coffers, according to a German taxpayers' advocacy group, the League of Taxpayers.

The solidarity surcharge was originally imposed in 1991 but was repealed after about a year. At the time of its reimposition on Jan. 1, the longevity of the surcharge was an open-ended matter. But Chancellor Helmut Kohl's government promises to review the issue annually.

Projected to raise an estimated $17.4 billion in extra revenue annually, the solidarity surcharge is a central element in government efforts to reduce its $44.4 billion budget deficit. The government has run up the deficit to pay for the redevelopment of eastern Germany, whose infrastructure was riven by war followed by 40-plus years of Communist mismanagement.

The Kohl government is currently in a somewhat precarious position, largely because of the unpopularity of the Free Democratic Party, the junior coalition member. Thus, government ministers are quick to take steps to counter the grumbling over the solidarity surcharge, hoping to prevent it from becoming too big a political issue.

Finance Minister Theo Waigel has raised the possibility of tax cuts totaling about $13 billion by 1996. Speaking Jan. 5 at a gathering of the Christian Social Union, the Bavarian-based sister party of Mr. Kohl's Christian Democrats, Mr. Waigel also suggested that the solidarity surcharge could be reduced by 1997 and repealed as early as 1998. He didn't specify how any revenue shortfalls - incurred as a result of tax cuts or reductions - would be made up.

Waigel, writing in Handelsblatt, acknowledged that the new taxes wlll make a dent in the population's pocketbooks but said they were unavoidable and were in the country's best long-term fiscal interests. ``The room for maneuver for a possible tax cut hasn't been earned yet,'' he wrote.

The government may be able to keep the tax malcontents in check over the short term. But the issue appears unlikely to disappear from the political agenda completely. Even big business is dissatisfied with the current taxation system and is pushing for change.

``Our current tax system is the biggest structural problem of our country,'' Manfred Schneider, a general manager of chemical conglomerate Bayer A. G., wrote in Die Welt, a daily newspaper.

Complaints could escalate if the German economy fails to perform as expected in the coming years. Conventional wisdom calls for about 2.5 percent economic growth in 1995 and similar annual growth through the end of the century.