WEST GERMAN INSTITUTES CALL FOR EARLY TAX CUTS
The five leading West German economic
research institutes said the government should do more to
stimulate economic growth and called for early introduction of
tax cuts planned for 1990.
    In their joint spring report the institutes were divided
about 1987 growth forecasts, with three predicting two pct
expansion and the other two only one pct growth. Gross national
product grew 2.4 pct last year.
    But the report said all the institutes believed that "more
must be done to produce dynamic growth so that more additional
jobs can be created."
    The institutes said any step which improved basic economic
conditions should be taken as quickly as possible. "From this
point of view, the tax reform planned for 1990 should be
brought forward."
    The government plans gross tax reductions of 44 billion
marks as part of the major tax reform. The net tax relief from
the tax reform will amount to 25 billion marks.
    However, the institutes criticised the government, not only
for the timing of the reform, but also because the question of
its financing had been left open.
    The government has not specified how the remaining 19
billion marks of the tax reduction package will be paid for,
though it has said it wants to cut state subsidies.
    The institutes said this lack of clarity from Bonn had
caused uncertainty among companies and households as to what
exactly they would receive from the tax reform and urged a
quick decision from the government.
    They also said the government should reduce tax
preferences, which would simplify the fiscal system, urged a
restriction of state spending and called for no increase in
value-added tax.
    The institutes also criticised Bonn for increasing
subsidies at a time further reductions had been pledged.
    They referred specifically to a doubling of special
writedowns for small and medium sized companies announced in a
package of tax adjustments planned for 1988 and described this
as an increase in subsidies.
    The institutes said total subsidies, including tax
preferences, had reached 80 billion marks in 1985 and risen
further since then. Given the scope of these subsidies, it
should be possible "despite ... Major political difficulties" to
finance the tax reform by cutting state handouts.
    The institutes said that if the government raised value
added tax or other indirect taxes a large portion of the
positive effects resulting from lower taxes would be lost.
    The report also noted that the government was progressing
only slowly with its plans to privatise state companies and
said more deregulation was needed. The government had to aim
for more competition, it said.
 REUTER
