German campaign plans would cost jobs, growth: institute

Reuters News
Posted: Jul 10, 2013 11:54 AM

By Michelle Martin

BERLIN (Reuters) - A pro-free market German economic institute criticized nearly all of the major parties in Germany on Wednesday for election pledges it said were likely to cost jobs and weaken growth in Europe's largest economy.

If the main opposition Social Democrats (SPD) were to win the federal election in September, growth would be 0.7 percent lower in five years' time than if the status quo were preserved and 300,000 jobs would be lost, the Cologne Institute for Economic Research (IW) said.

The proposals of the smaller Greens party would have the same effect and both parties' plans, which include introducing an asset levy and raising the top rate of income tax, would cost taxpayers almost 60 billion euros ($76 billion), it said.

The SPD criticized the study. Joachim Poss, the party's deputy leader in parliament, called it a "biased horror scenario". He said the SPD would use higher tax revenues to stimulate demand by investing in education and infrastructure.

Priska Hinz, a budget expert for the Greens, said the IW did not recognize that it was necessary to invest in the switch to renewable energy, education and care, which she said would create hundreds of thousands of jobs and boost growth.

Chancellor Angela Merkel's conservatives would need an extra 11.8 billion euros to pay for plans which include raising pensions for mothers, the IW said. Over five years this would drive GDP 0.1 percent below the level at which it would stand if the status quo were preserved and cost 100,000 jobs, it said.

The left Linke party, which wants to hike the top rate of income tax and increase basic social benefits, fared worst in the study, which said their plans would cost 800,000 jobs over five years and cut 1.9 percent off GDP.

"From an economic perspective, the election programs are more or less a catastrophe: some of them give away jobs and others jeopardize jobs," said IW director Michael Huether.

He said the study showed none of the parties had recognized the real challenges facing Germany in their election programs and said the best social policy was to create competitive jobs.

Only the pro-business Free Democrats' (FDP) plans would not have a measurable impact on growth or result in a loss of jobs, the IW said.

An opinion poll published on Wednesday showed the SPD and their desired coalition partner, the Greens, would garner 37 percent of votes while the ruling center-right would take 46 percent.

($1 = 0.7821 euros)

(Reporting by Michelle Martin; additional reporting by Matthias Sobolewski Editing by Jeremy Gaunt.)