Following Alex, more opinion polls seem to be showing that Merkel will struggle to get a majority in partnerhip with the FDP. At the same time voices are being raised within the CDU suggesting that the principal responsibility for this debacle lies with the Professor from Heidelberg.
Some indication of why flat tax ideas might impact so negatively on German voters is offered by the Financial Times this morning in a leader commenting on similar proposals from within the UK Conservative Party:
Some things, though, never seem to change. One of them is an abiding belief, defied by the outcome of the last three elections, that political salvation rests in the promise of tax cuts. George Osborne, the shadow chancellor and close ally of Mr Cameron, has thus proposed a new commission to consider a “flat tax”. All the current income tax rates and allowances would be swept away, replaced with a single, low rate and a high starting threshold. Mr Osborne is among the smartest of the young MPs in the so-called Notting Hill set. But sometimes even the modernisers inhabit a parallel political universe.
The economics of the flat tax are at very best dubious. A £10,000 income tax threshold combined with a single rate of 20 per cent, would leave a £50bn hole in the public finances. You have to have an awful lot of faith in supply side economics to believe it would be filled by an explosion of enterprise. The economists, though, can be left to argue among themselves. As much as some Tories see it as a panacea, the politics of a flat tax is electoral suicide.
So apart from the distributive consequences, the principal objection to the flat tax is the potential hole it would leave in public finances: ie how are you going to pay? On one theory a subsequent boom could generate significant income. Of this the FT has its doubts, the German Electors clearly have more than doubts, and I personally think everyone is doubting with good reason.
Now, in fairness to Angela Merkel, she claims not to be exactly proposing a flat tax, but then, in order to explain herself she has to lead off the not-especially-economically-literate voter into an enormously complicated debate about marginal tax rates and tax thresholds. Whatsmore, she can hardly blame people for imagining that what she is talking about is some version of Reaganomics and the impact of the Laffer Curve since she deliberately selected a section of Ronald Reagan’s 1980 election speech to use as the basis for her closing remarks in the TV debate with Schröder. Here’s what Reagan said:
“I think when you make that decision, it might be well if you would ask yourself, are you better off than you were four years ago? Is it easier for you to go and buy things in the stores than it was four years ago? Is there more or less unemployment in the country than there was four years ago?””And if you answer all of those questions yes, why then, I think your choice is very obvious as to whom you will vote for. If you don’t agree, if you don’t think this course that we’ve been on for the last four years is what you would like to see us follow for the next four, then I could suggest another choice that you have.”
and here’s a translation of the Merkel version:
“Dear voters, in two weeks you will make your decision about the election. Perhaps answering a few questions will help you to make your decision: Is our country better off than seven years ago (when Schroeder came to power)? Is growth higher? Is unemployment lower? Do we have less bureaucracy? Are our pensions and health care better?””If you can answer yes to all of these questions, then I think you have probably already decided who you will vote for. But if you have any doubt, if you do not want things to carry on as they are, then you have a choice.”
Of course it was the SPD opposition who drew this to the attention of Der Spiegel, and since that time they have used the ensuing controversy to make a lot of the running in the debate. But you have to ask yourself the question, who the hell was it who was advising Merkel to do this, and what was their objective since it hardly seems to have pushed her nearer to the Chancellorship?