14 March 2013

Deutsche Bank: The SPD's new 'government' programme - Another sign of reform fatigue in Germany

Major proposals include: (i) intensified redistribution of income by higher income taxes and the introduction of a wealth tax, (ii) stricter regulation of the banking and financial markets, e.g. executive pay curbs, restrictions on high-frequency trading and an FTT, (iii) partial re-regulation of the labour market, e.g. introduction of a general minimum wage of €8.50 per hour, more restrictions on labour leasing, extension of employee participation in co-determination, (iv) increased social security spending, e.g. minimum pension.

The programme confirms and supplements the party’s demands for restrictions especially for large banks and their investment banking business. The SPD favours a restructuring along the lines of the original Liikanen proposals as the party states that the Germans want a clear separation between investment and retail banking. Proposals here include a pan-European restructuring fund funded by (large) banks according to their risk profile, their debt ratios and their relevance for the system’s stability. The SPD also repeats the demand for a cap on executive’s variable remuneration and a cap on tax deductibility of wage payments above €500,000. The SPD also advocates restrictions on high frequency trading, the limitation of trading with derivatives, the prohibition of speculation with food and of speculation with raw materials, which are not based on activities in the real economy.

Besides stiffer regulation of the financial industry, the issue of social justice will be the second major topic of the SDP’s campaign. For the SPD this primarily means higher taxes for ‘wealthy’ people on the one hand and a mixture of measures to support low-income earners and families on the other hand. The proposals for higher taxes, e.g. higher maximum income tax, higher rates for the withholding tax (32 per cent instead of 25 per cent), (re)introduction of a wealth tax, extension of the inheritance tax, have been debated for quite some time. Therefore it is astonishing that the programme presented no further details for the planned wealth tax and the amendment of the inheritance tax – measures which indeed will quickly bump against legal barriers which have repeatedly been the subject of constitutional court complaints in the past.

Full report

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