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09/06/2010

SPIEGEL: Minister Schäuble, we've come across a pair of interesting sentences in our archives. Do you mind if we read them to you?

Schäuble: By all means.

SPIEGEL: "Our goal is to have people hold on to more of their gross salaries. The CDU and the CSU are opposed to tax increases." Does that sound familiar? (Editor's note: The center-right Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU), are currently governing in Germany as part of a coalition with the pro-business Free Democratic Party (FDP). The FDP had pushed to have tax cuts included in the coalition agreement after the September 2009 elections, but the issue was sidelined by Merkel's government as a result of the economic crisis. Schäuble is a member of the CDU.)

Schäuble: I suspect that is from the Union's (CDU/CSU) election platform.

SPIEGEL: Indeed. Which raises the question: How does that fit with the coalition's most recent decision to make significant increases in taxes and fees?

Schäuble: First of all, right after the election, we brought citizens a considerable amount of relief. At the turn of the year, we reduced the tax burden by significantly more than €20 billion ($25.8 billion), particularly for families as well as small and mid-sized companies. Second, we're working on balancing the budget to reduce deficits brought about by the financial crisis. We agreed on an election platform at a time when you still couldn't foresee the entire scale of the financial crisis.

SPIEGEL: And, for all this, contributions for statutory health and unemployment insurance will rise and, effective immediately, whoever wants to fly somewhere will have to pay a new tax that will be included in the ticket price. Can you understand why so many people are disappointed?

Schäuble: I don't get the impression that people are disappointed.

SPIEGEL: Recent surveys put support for the Union at about 30 percent, while the opposition (the center-left Social Democrats and the environmentalist Greens) almost has a majority of support at the national level.

Schäuble: The fact that there's room to improve in the polls has less to do with our policies and much more to do with how we communicate our internal discussions. We need to make some improvements there. But perhaps you'd let me recite a few opinion-research findings, for a change.

SPIEGEL: Be our guest!

Schäuble: The polls unanimously show that people worry a lot more about high public debt than they do about their own tax burden. For them, it's more important for the economy to improve again and that we have a good chance of getting unemployment below the three million level this year. I'm absolutely convinced that things will improve in the polls if the Union can stick to its policies, which support solidarity and sustainability and are committed to rigorously protecting the interests of successive generations.

SPIEGEL: Many in your party still remember what you promised in the runup to the election. And, indeed, there's no denying the fact that Germany's income tax regime puts an above-average burden on high earners.

Schäuble: No one disputes the fact that in terms of tax rates we have had a relatively big increase for mid-range incomes. Therefore, in the long run, the issue of how we formulate income tax rates is of the utmost importance. But, of course, everyone also knows that you can't make any substantial tax reforms without having to put up with a significant amount of losses in tax revenues. For the next few years at least, though, we don't have the leeway to do so.

SPIEGEL: So, in other words, people should just wait patiently until hell freezes over.

Schäuble: I plead for a step-by-step approach. For the time being, the most important thing is to reduce debt. In the fall, we are planning to make some suggestions on how we can simplify our tax system without compromising our savings targets. And, ultimately, we're going to have to confront the issue of how we can improve the financial situations of our cities and municipalities.

SPIEGEL: That's what we're getting at: There's no talk of cutting taxes.

Schäuble: You are judging too prematurely. Even in this legislative period, I can imagine us discussing and approving a tax-reform plan that is primarily aimed at reducing the tax burden on mid-range incomes. And then we could implement it in the following legislative period. In doing so, we would make it clear that we stuck to our goal of reducing taxes, but only implemented it when the preconditions were met in terms of financial policy.

SPIEGEL: Many in the Union aren't going to have the patience to wait for that. Horst Seehofer, for example, the head of the CSU and governor of Bavaria, has assigned his finance minister, Georg Fahrenschon, the task of drawing up and presenting a plan for tax cuts before the end of the year.

Schäuble: Mr. Fahrenschon is one of the best and most capable finance ministers we have. I would greatly welcome it if Mr. Seehofer is putting him in charge of working on some plans.

SPIEGEL: But what are you going to do if Seehofer also intends to implement his plan?

Schäuble: Then we will have to discuss it within the coalition. That's how we agreed to do things. In fact, we've also agreed that, if we do something, we do it together -- or not at all.

SPIEGEL: People in your party are not only calling for tax relief. Recently, they have also voiced another more fundamental criticism, saying that you, Minister Schäuble, can only impose spending cuts rather than be creative. You are viewed as a naysayer rather than someone who can shape policies.

Schäuble: I'm not acquainted with such opinions. Our program for the future, which we approved in the cabinet last week, has more to do with shaping policies than most people would have expected from us. We've shown that we can consolidate the budget without endangering growth. And we're even allocating additional funds for future expenditures, such as education. I really don't know how someone could get the impression that we don't do enough formulation. Likewise, we really can't be criticized for the fact that we are simultaneously also reaching our savings targets with the utmost precision.

SPIEGEL: Well, the only problem is that many of the elements in your savings package contradict election promises. Care for an example?

Schäuble: If you must.

SPIEGEL: "With the CDU and the CSU, there won't be higher federal taxes on energy."

Schäuble: If we want to put the budget in order, we can't do it with spending cuts alone. When it comes to spending, we've consolidated things in a way that gives proper weight to social concerns. Still, it was clear to us that we also had to do something on the revenue side. With the eco-tax, for example, we'll also be able to phase out some of the tax subsidies in an environmentally sensible way.

SPIEGEL: Leading financial experts have called for even larger reductions in state subsidies. Why did you lose the courage to do that?

Schäuble: Only a few people have ever accused me of lacking sufficient courage. But courage is no substitute for experience. And it's my experience that everyone supports reducing subsidies until it's no longer abstract. A good example of this can be found in the debate we're currently having about the eco-tax.

SPIEGEL: You are referring, of course, to Hans-Peter Friedrich, the parliamentary leader of the CSU in the Bundestag, the lower house of parliament. He wants to hold on to the eco-tax benefits for energy-intensive operations.

Schäuble: If Mr. Friedrich calls for a detailed examination of the effects on all sectors and companies in the upcoming parliamentary proceedings, he will have my support.

SPIEGEL: You are also being accused of endangering jobs by raising eco-taxes.

Schäuble: I am willing to discuss amendments if they can really save jobs. The only important thing is to preserve the planned amount of savings. If we don't make cuts in one place, then we have to make up for it somewhere else.

SPIEGEL: The coalition had originally planned to extend the life spans of nuclear power plants in order to direct the majority of the profits into developing renewable energies. But now it is cramming the money into the budget. Do you not see the contradiction there?

Schäuble: If you present it as you have, it might sound like a contradiction. But it isn't. From the very beginning, revenues from a possible fuel-rod tax have been part of the future package for the federal budget. But the fuel-rod tax is also linked to the issue of reactor life spans in both a political and factual way. We've always said so. However, whereas we already had to present our draft plan for the federal budget at the beginning of June, our goal is to present our energy plan in the fall. I am confident that, by then, we'll be able to strike a fair balance that also guarantees the appropriate amount of support for renewable energies.

SPIEGEL: Still, the final result could also be that €2.3 billion goes toward the budget while no money is left over to expand renewable energies.

Schäuble: But you don't know that. We're in the middle of talks with the energy industry, which has already signaled to us that it intends to make more funding available for renewable energies.

SPIEGEL: Still, Economics Minister Rainer Brüderle (of the Free Democrats) wants to put a time limit on the fuel-rod tax.

Schäuble: Brüderle has also approved the draft legislation for the fuel-rod tax. The decision on the €2.3 billion for the budget has already been made. If my colleague Brüderle finds an alternative that is of the same value and can hold up, I won't ignore it.

SPIEGEL: One of the largest items of expense in the budget is Hartz IV (editor's note: The Hartz IV reforms introduced during the administration of former Chancellor Gerhard Schröder (1998-2005) drastically cut benefits for Germany's long-term unemployed.). In February, Germany's Federal Constitutional Court ruled that the system for calculating Hartz IV benefits is unconstitutional and therefore in need of revision. The billions in new expenses caused by this could shred your package to pieces.

Schäuble: Now, hold on. (Labor Minister Ursula) von der Leyen is working intensively on finding a solution to that problem. Likewise, we were obviously already aware of the (court's) decision when we were discussing the budget. So, you can assume that the plan will be included in what we've already agreed upon.

SPIEGEL: In other words, if there is an increase in Hartz IV benefits, von der Leyen will have to find the money for it somewhere else in her ministry's budget.

Schäuble: That's what we agreed to. And, in this case, I don't really see such great hurdles. The budget of the Federal Ministry of Labor and Social Affairs is actually relatively big, to put it mildly.

SPIEGEL: When it comes to Germany's armed forces, Defense Minister Karl-Theodor zu Guttenberg is using the savings package to push forward the transformation of the Bundeswehr into an all-volunteer force. Is that something you support?

Schäuble: If that's the impression that arises, it's wrong. The structural reform of the Bundeswehr is necessary, but it isn't being prompted by the budget situation. As I see it, Karl-Theodor zu Guttenberg is on a good path by proposing to eliminate mandatory conscription. Today, the Bundeswehr's mandate is different than it was when Germany was divided. And that's why we now face the issue of structural reform rather than the one of how many locations will be affected or how much money we have.

SPIEGEL: An extended phase-out of nuclear power plants, a new Bundeswehr and austerity measures in other places. Regarding (former chancellor) Helmut Kohl, who supported you for many years before becoming your opponent, you recently said: "Kohl helped the people who are afraid of change." Is Chancellor Merkel fulfilling that same role today?

Schäuble: Please! Chancellor Angela Merkel has described societal changes more frequently, earlier and more clearly than many others. Still, it's also true that you get initial popular resistance to change, particularly in prosperous countries like ours. That's the element of inertia that you find in every democracy.

SPIEGEL: The chancellor intends to alter her style of leadership -- and bring Guido Westerwelle (her vice chancellor and foreign minister with the FDP party) and (CSU leader) Horst Seehofer, who have argued with the chancellor on issue after issue like tax cuts, for example, back into line -- in order to lead the coalition out of its crisis. Will the two of them let that happen without a fight?

Schäuble: We aren't in a crisis, but there are some things that could be improved. For example, we need to stop constantly suggesting initiatives that everyone knows won't get the approval of their (coalition) partners. And we need to explain what we are doing even more clearly. Still, why should we refrain from having heated debates? They're the only way to arrive at good decisions that can last.

SPIEGEL: Minister Schäuble, we thank you for this interview.