Merkel Puts Economy at Forefront of German Election Campaign

By Andrea Thomas Features Dow Jones Newswires

Chancellor Angela Merkel's conservatives pledged Monday to achieve full employment by 2025 and cut income tax as part of their platform for the election in September.

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The joint announcement by Ms. Merkel's Christian Democrats and their Bavaria-based sister party, the Christian Social Union, is the latest indication that the economy will play a central role at the poll.

The center-left Social Democrats has also promises tax cuts as well as substantial increases in welfare benefits, meaning this election marks a departure from recent contests dominated by the need for budget cuts and austerity measures. Germany hasn't seen significant tax cuts since the mid-2000s.

"Our plan for the future is prosperity and security for everybody," said Ms. Merkel, who polls see as the front-runner to the autumn ballot. "It's a government program that brings the country together and doesn't divide it."

In their joint platform, the conservatives pledged to bring unemployment down from 5.5% to below 3%, which economists consider full employment.

The health of the German economy--with its strong jobs market, budget surplus and falling public debt--count among Ms. Merkel's main assets for the campaign, even though most economists credit Gerhard Schröder, her predecessor as chancellor, for turning the country around with painful and unpopular economic reforms.

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One of the main beneficiaries of the conservatives' largesses is likely to be families. In addition to EUR15 billion a year in income tax cuts, the parties have pledged extra tax breaks for families with children and grants to home buyers with children. They also promised to phase out the unpopular "solidarity tax," a 5.5% income tax surcharge added in 1991 to help fund development in the former East Germany.

In total, the platform would bring tax relief worth EUR27 billion ($31 billion) annually, according to the conservative MIT economic club.

Ms. Merkel's conservative bloc currently has a 15 percentage point lead over the Social Democrats. The Emnid poll of 936 voters conducted between June 22-24 showed 39% of the voters favored Ms. Merkel's camp while only 24% support her center-left rivals, .

Ms. Merkel's rivals for the chancellorship in September's election have already lined up spending proposals that includes free child care, higher unemployment benefits and infrastructure investment, as well as tax cuts that could bring German voters tens of billions of euros extra a year, economists said.

The Social Democrats have also pledged EUR5 billion in income tax cuts but they want to raise the burden on top earners while focusing the cuts on low- and medium income households. They also pledged to keep state pensions at their present level without raising retirement age. Given Germany's rapidly aging society, economists expect this to require significant increases in pension insurance contributions.

In the opposition, the pro-business Free Democrats want to cut taxes by EUR30 billion a year. Others, including the antiestablishment AfD and the Left Party, want to focus spending on families, from one-time cash benefits for newborns to free day care and a near doubling in child benefits. The Greens have said they would earmark an extra EUR12 billion for families on low incomes and single parents.

Despite their agreement on the economy, the conservatives failed to hammer out a joint position on how to tackle the continuing refugee crisis. The crisis has receded since almost a million asylum seekers arrived in 2015, but security officials say they are still registering some 700 new arrivals everyday.

Bavaria's Christian Social Union wants the government to set an upper limit on new arrivals, something Ms. Merkel has refused to endorse.

Write to Andrea Thomas at andrea.thomas@wsj.com

(END) Dow Jones Newswires

July 03, 2017 10:05 ET (14:05 GMT)