–Loss Of Bundesrat Majority Would Make Further Large Tax Cuts Unlikely
–Task Of Significantly Cutting Federal Deficit Would Become Much Easier

By Thomas Widder

BERLIN (MNI) – German Chancellor Angela Merkel’s CDU/CSU-FDP
government coalition risks losing its majority in the upper house of
parliament, the Bundesrat, in this Sunday’s elections in North
Rhine-Westphalia, Germany’s most populous state.

The Bundesrat represents Germany’s 16 states.

The latest polls credit the CDU-FDP coalition currently governing
in North Rhine-Westphalia with 43% to 44% of the intended vote, while
support for the other parties — the center-left SPD, the ecologist
Greens and the neo-communist Left party — is seen at 50% to 51%.

Even if the Left party should not be able to overcome the 5%
threshold required to be represented in parliament (it hovers at between
5% to 6% in the polls), the SPD and Greens together still fare better in
the polls (45% to 47%) than the CDU-FDP combination.

If these polls prove accurate and the CDU-FDP government in North
Rhine-Westphalia indeed emerges without a majority from Sunday’s
election, Merkel’s camp would lose 6 seats in the Bundesrat, thus
controlling only 31 out of 69 total seats.

That means Merkel’s federal government would have to rely on the
opposition for any major fiscal legislation.

In its coalition contract, the Merkel government has promised tax
cuts of E24 billion in the current legislature, which runs until 2013.
Up until now only E4.5 billion of those cuts have been implemented.

All the opposition parties have said they reject further tax cuts,
since tax revenue is already on the decline due to the deep recession
the country has gone through.

In its latest tax revenue estimate released Thursday, the
government revised down its tax revenue forecasts for the period from
2010 through 2013 by some E39 billion.

A loss of the Bundesrat majority would therefore make it highly
unlikely that the government would be able to fully deliver on its tax
cut promises.

In return, it would facilitate Finance Minister Wolfgang
Schaeuble’s task of cutting the federal structural deficit by E10
billion per year from 2011 till 2016, as required under the tough
national debt limitation rules enshrined in the constitution.

Schaeuble suggested recently that public budgets could not support
large scale tax cuts at the moment. A loss of the Bundesrat majority
might therefore actually help the government by allowing it to back away
from its tax cut promise without losing face. It could always blame the
opposition for blocking the tax cuts in the Bundesrat.

However, with eight state elections scheduled for next year, the
Merkel government could always win back its majority in the Bundesrat.

That will be no easy task, though. Past experience has shown that
federal governments tend to lose votes in state elections. Opposition
majorities in the two houses of parliament are more the rule than the
exception in Germany.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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