Chancellor Gerhard Schroeder faced a test of his authority yesterday as the German parliament voted on labor-market changes that are a central part of his agenda to revive Europe's biggest economy.
Also under consideration is Schroeder's plan to move up by a year to next January income tax cuts worth about US$18 billion -- giving an immediate boost to the economy after three years of stagnation. That would add to cuts worth US$8.1 billion already scheduled for next year.
Schroeder has staked his future as chancellor on pushing his reform package through parliament by Christmas, and arranged for French President Jacques Chirac to represent him at a EU summit so he could attend yesterday's voting.
Earlier this week, Schroeder made concessions to bring on board six left-wingers in his own Social Democratic party whose objections had raised the prospect of defeat -- and speculation that his government could collapse. Schroeder's coalition with the Green party has only a nine-seat advantage in the lower house.
Yesterday's voting centered on plans to increase pressure on the unemployed to take jobs as the government tackles a jobless rate above 10 percent. Benefits to the long-term unemployed and social security recipients will be merged -- meaning that the long-term jobless will receive lower payments.
In concessions offered on Monday, Schroeder's party reassured left-wingers who argued that the government is asking weaker groups to shoulder too much of the burden that people would be able to reject jobs without fearing benefit cuts if the wage offered is below the "customary" level in their region.
Defending his reforms on Wednesday, Schroeder insisted that "the growth rates that we were counting on, and that we had in the 1990s in order to fulfill social expectations, are no longer there."
Yesterday's vote is unlikely to end Schroeder's troubles. The plans need approval by parliament's opposition-controlled upper house, and opposition conservatives say they want the proposals toughened and the concessions reversed.
"This is about many, many details and there will be very hard negotiations," Angela Merkel, leader of the main opposition Christian Democrats, said on Thursday.
The upper house must also approve the advanced tax cuts, which would see the lowest income tax rate fall to 15 percent from 19.9 percent and the highest rate to 42 percent from 48.5 percent. The plan foresees cutting tax breaks and subsidies for home-builders and commuters.
Opposition leaders have objected to the fact that the government plans to finance much of the cut by raising new debt -- raising the risk that next year, Germany will again fall foul of EU budget rules that require it to keep its deficit to a maximum 3 percent of gross domestic product.
Also facing votes yesterday were bills to restructure the government's federal labor office and improve job placement; to increase tobacco tax and use it to finance healthcare costs; and an amnesty for tax evaders that the government hopes will bring proceeds of US$5.8 billion.
The lower house approved last month the first part of Schroeder's reform package -- healthcare reforms that will make Germans pay more of their own costs, along with cuts in the duration of jobless benefits and legislation making it easier for smaller firms to fire workers.
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