Get Us Out Of Here

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One thing that infuriates voters is the knife-point targeting of the taxes being introduced by Schröder and his Finance Minister, Hans Eichel. Dog owners will get slapped with a tax of 16% on pet food; company cars will be hit with a 1.5% tax, leading the auto industry to predict 150,000 fewer cars will be sold next year. Air travelers were threatened with a 15% tax on frequent-flyer miles, prompting national airline Lufthansa to say it was considering moving its program overseas, which would eliminate 500 jobs. The government will impose a flat 15% tax on capital gains from the sales of shares and houses, boost gasoline taxes and offer fewer subsidies for new home construction (hence the architect joke). At the same time, unemployment benefits will be cut by j6 billion next year. "These policies will push a country already stagnating into recession," says Norbert Walter, chief economist of Deutsche Bank.

Support for Schröder's Social Democratic Party is so weak that the upper house of parliament, the Bundesrat, which is narrowly controlled by the opposition conservatives, voted against adopting the higher pension and health-insurance contributions as well as Schröder's much-maligned proposal to reform the labor market by turning unemployment offices into temporary job agencies. The labor reforms were suggested by an independent commission headed by Peter Hartz, the personnel chief at Volkswagen. But even Hartz has complained that his recommendations have been so watered down because of pressure from labor unions that they weren't likely to succeed. Following the defeat in the Bundesrat, the legislation was sent to a mediation committee where it was approved unchanged. It will be voted on again in the lower house, in which Schröder has an absolute majority.

Big business has been a vocal critic of Schröder ever since he started hinting that higher taxes are necessary. "We are on the wrong path," says Ulrich Schumacher, ceo of chip maker Infineon. "I do not know anyone who is not worried." Ludwig Georg Braun, president of the Association of Chambers of Commerce and Industry, attacked Schröder's reforms. "Emergency repairs are not enough to get the economy working again," Braun said. "The government must show willingness for comprehensive reforms that break Social Democratic taboos." Business has been particularly alarmed that sdp state governments are proposing the reintroduction of a wealth tax in a drive to balance their state budgets. Critics maintain that the estimated j350 billion that wealthy Germans have already hidden in bank accounts in tax havens like Switzerland would only grow if a wealth tax is introduced.

The opposition says it will press ahead with its plans for a special parliamentary investigation of whether Schröder lied to the voters about his tax plans. "Tax increases are economically unreasonable in the current situation and therefore we will not consider them," Schröder promised voters on July 26. A parliamentary inquiry only requires the support of 25% of the members of the Bundestag, so the investigation seems certain to go forward. The Social Democrats said they would demand a parallel investigation of election promises made by Schröder's defeated opponent, Edmund Stoiber.

Social Democratic operatives desperately hope the negative mood will dissipate before February, when state elections will be held in Lower Saxony and Hesse. If the Social Democrats lose Lower Saxony, it could make passage of legislation even harder. And with the government in gridlock, many more German entrepreneurs will be tempted to find new homes in lower-tax, business-friendly climates.