Let’s slash together

Date: 04/10/03

The leaders of two states, from opposing parties, show the way

CUTTING subsidies can be harder than raising taxes, particularly in Germany, where financial aid and tax breaks together add up to an estimated €157 billion ($182 billion) a year - more than a third of all tax revenue. And it is even harder to get government and opposition to agree on how and where to make such cuts.

Yet this is exactly what could now happen. For the first time since the second world war, Germany may be seriously examining its chunks of pork. On September 30th, the premiers of the states of North Rhine-Westphalia (Peter Steinbruck, a Social Democrat) and Hesse (Roland Koch, a Christian Democrat) jointly presented a proposal that could save government coffers €15.8 billion in three years. More remarkably, they received general applause.

The pair pulled it off not by trying to cut specific items, knowing that that would lead to endless debates over which subsidies are good or bad. Instead, they decided to apply a method which they liken to a lawn mower: except for aids deemed “sensible” (such as support for health care, charities and research), they want all federal subsidies cut by 4% a year for the next three years.

That is a lot - but may still not be enough, given Germany's sorry public finances, which are heading for a deficit this year of at least €67 billion. Hans Eichel, the finance minister, has already said he wants to go further, for instance by sharply reducing home owners' support and commuters' tax breaks.

The blueprint has another weakness: by cutting evenly across the board, it avoids tough political choices. Radical reformers ask why, for instance, the government should give people money to buy a house or get to work at all? Still, Messrs Steinbruck and Koch at least came up with a detailed list of who is getting what and a tool box for working out further cuts.

It would in any event be good for Germany if the blueprint was put into practice. It might also help the chancellor, Gerhard Schröder, who this week again threatened to resign if left-wing rebels among his own Social Democrats in parliament refuse to back his ambitious reforms. To push them through, he must strike deals with the opposition. The two premiers' subsidy-cutting proposal shows that a consensus is possible without all good ideas, as they put it, “being ground to death”.

The premiers of the German states of North Rhine-Westphalia and Hesse jointly presented a proposal on 30 September 2003 that could save the Government €15.8 billion in three years.

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