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Merkel ally backs double-digit hike in top tax rate

Annegret Kramp-Karrenbauer, Christian Democratic Union (CDU) top candidate in the Saarland state election addresses a news conference in Ber
Annegret Kramp-Karrenbauer, Christian Democratic Union (CDU) top candidate in the Saarland state election addresses a news conference in Ber

BERLIN (Reuters) - A senior conservative ally of Chancellor Angela Merkel has suggested Germany return to a top income tax rate above 50 percent, setting off a fierce debate within her ruling coalition half a year before the country holds an election.

Annegret Kramp-Karrenbauer, premier of the western state of Saarland and a senior figure in the Christian Democratic Union (CDU), said in a weekend radio interview that Merkel's predecessor Gerhard Schroeder had gone too far by reducing the top rate to 42 percent from 53 percent in the 1990s.

"From my point of view, a return to the previous level should be possible," she said, adding the caveat that higher tax rates should neither hurt small businesses nor lead to a rise in unemployment.

The comments are strange because they come after months in which Merkel's CDU has denounced the center-left opposition for advocating higher tax rates and made it plain that they opposed President Francois Hollande's push to impose a wealth tax of 75 percent in neighboring France.

In their election programs, the Social Democrats (SPD) back an increase in the top rate to 49 percent for those earning over 100,000 euros, while the Greens say that rate should apply to incomes above 80,000.

Kramp-Karrenbauer's call for an even higher rate was immediately rebuffed by the CDU's ruling partners, the Bavarian Christian Social Union (CSU) and Free Democrats.

"It's perfectly clear. With the CDU and CSU there will be no increase in income, property or inheritance taxes," said Markus Soeder, state finance minister in Bavaria.

Otto Fricke, a budget expert for the FDP, tweeted: "I hope the CDU leadership distances itself from this quickly".

That a member of the CDU dared advocate higher taxes at all so close to an election is a sign of how far left the party has swung under Merkel, who was hailed as a German version of Britain's reformist Prime Minister Margaret Thatcher before she took office in 2005, but has since undergone a political transformation.

Two years ago, after the Fukushima disaster in Japan, Merkel abandoned her long-standing support for nuclear energy almost overnight. And her party now backs the introduction of minimum wages in certain sectors of the economy after opposing this for years.

Merkel has been criticized by some for stealing the policies of her opponents, but it hasn't hurt her in the polls. A new survey by Emnid on Sunday showed support for her conservative bloc at 40 percent, compared to 27 percent for the SPD and 15 percent for the Greens.

(Reporting by Noah Barkin)

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