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There is widespread coverage of the German budget measures announced yesterday, which will see €80 billion cut from the budget by 2014. Net spending cuts in the first year will be €11.1bn, followed by €16.1bn in 2012, €25.7bn in 2013, and €32.4bn in 2014, combined with up to 15,000 job cuts in the public sector.

The plan stops short of any increases in income tax or cuts in pensions, but focuses instead on reduced social security and unemployment benefits. There will be more means-testing of benefits for the unemployed, and cuts in child allowances for unemployed parents, as well as cuts in pension contributions for the jobless.

Merkel said a decision on the abolition of conscription in the armed forces had been postponed, but the Bundeswehr would face radical reforms in order to meet its spending target.

The plan includes new taxes on air travel and the nuclear power industry, and some form of financial transaction tax, in addition to a banking levy already agreed by the German government.

The “ecological tax” on air travel is intended to raise €1bn a year. Nuclear power producers will have to pay an extra tax in exchange for permission to extend the working lives of their plants, levied as a tax on enriched fuel elements. That is intended to provide a further €2.3bn.

Concerning the financial transaction tax, the German thinking is to have a tax on all financial transactions, including computer trading and derivatives. The aim would be to include all high-speed transactions, rather than simply levy a tax on turnover. Although it is not expected to reach any agreement at the G20, Germany plans to push for an EU decision. If that is blocked, for example by the UK, Berlin will try for a eurozone transaction tax.

Sources: Financial Times, Open Europe

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