An Official Attempt to Deceive: With Tax Cut Plan, Merkel's Government Off to False Start

• Print
• E-Mail
• Feedback

"The government debt is already costing taxpayers billions today," says Christian Kaps, 31, who became the father of a young daughter a few weeks ago. Kaps, an employee of a Hamburg film company, and his companion can use the additional child benefit of €20 a month, and yet, he says, he would prefer to see the government invest the billions in education and childcare. "My daughter will benefit more from better kindergartens and schools in the future than we'll benefit today from the extra money."

The legislation isn't even popular among the government's supporters. According to a survey conducted in late October by the Forsa opinion research firm, only 26 percent of CDU supporters, and a slightly larger percentage of the general population, favor the tax cuts. Only 22 percent of German voters support the government's plans, while 69 percent are opposed.

While the increase in child benefits seems frivolous, the reduction in the VAT for hotel owners is nothing but a political move, at the expense of the general public. The measure will cost close to €1 billion. "It's counterproductive to reduce the value-added tax for hotel stays," says Wolfgang Wiegard, a member of the Council of Economic Experts. "It makes the tax law more complicated, and money that's urgently needed is being given away."

The controversial provision came about as a result of pressure from the German hotel and restaurant association. The lobbying group had originally urged lawmakers to reduce VAT rates for both hotels and restaurants, but that was too expensive for politicians.

The Wrath of Restaurant Owners

Instead, they only applied the VAT reduction to hotel stays, a half-baked solution that, despite earning the Merkel team the appreciation of hotel owners, has also incurred the wrath of restaurant owners, who now feel short-changed. One of them is Uwe Krüger, a restaurateur in the eastern city of Frankfurt an der Oder, where he operates the Seeterrasse, a restaurant with ballroom facilities.

Krüger had expected financial relief from the new government, but now none of that will materialize. He has trouble understanding why the owner of a local hotel, the Goldener Hahn, should receive a tax break while he gets nothing. "Why do the hoteliers get this and we don't? We're both in the hospitality business."

The government was hard-pressed to explain limiting the tax relief to hotels. After days of negotiations, someone raised the question as to why the reduced VAT rate should apply to a room with a king-sized bed at Berlin's luxury Hotel Adlon, while someone sleeping on an air mattress at a campsite is charged the full rate. In the end, the coalition agreed that the reduced rate of 7 percent would be applied to both scenarios.

Hotel breakfasts are also a tricky issue. The reduced VAT rate cannot be applied to hotel breakfasts, because it would discriminate against breakfast restaurants near a hotel. As a result, a hotel bill will now list room charges and breakfast separately, together with the respective VAT rates.

In the next few months, experts with the German Finance Ministry's tax division will have to come up with rules to regulate all of these issues, as well as guidelines for the state tax authorities.

This raises another, somewhat more risqué issue. The tax experts will also have to decide whether hotels that rent rooms by the hour should benefit from the VAT reduction. If so, wouldn't this mean that the treasury is promoting morally objectionable prostitution? For Stephanie Klee of the Federal Association of Sexual Services, the answer is clear: "Normally, segments of our industry should also enjoy the benefits." They include brothels, which provide rooms for prostitutes and their customers.

There is no reason to discriminate against brothels, says Klee, noting that clients are pampered at spas, just as they are in brothels. "Now where's the difference?"

GUNTHER LATSCH, CHRISTIAN REIERMANN, GORDON REPINSKI and JOHANNA RÜSCHOFF

• Back
• 1
• | 2

• Part 1: With Tax Cut Plan, Merkel's Government Off to False Start
• Part 2: 'Government Debt Costs Taxpayers Billions Today'