New Elections are Likelier Than Tax Increases

It is paradoxical. If we are to believe the opinion pollsters, then the poor election results for Germany’s Social Democratic Party (SPD) and the Greens are payback, at least in part, for their unpopular plans for tax increases. During her campaign, Chancellor Merkel, widely celebrated as the election victor, assured us that taxes are high enough already. Nevertheless, there is now talk about increasing taxes. Will it actually come to that?

At first glance, it appears that tax hikes are in the pipeline. Merkel’s party, the Christian Democratic Union (CDU) is by far the strongest faction in the Bundestag, but by itself, it lacks a majority. The SPD and the Greens did poorly in the elections, but due to the narrow failure of the euro-sceptic AfD (Alternative for Germany) and libertarian FDP (Free Democratic Party) to reach the five per cent threshold required for parliamentary representation, the parties favouring tax increases now hold a majority in the Bundestag. The fact that Angela Merkel can continue as Chancellor only has to do with the promises made to the voters by the SPD and the Greens that they would not work together with the hard-left party Die Linke.

However, this does not imply that the Social Democrats and the Greens are eager to enter into a coalition with Angela Merkel as junior partners. They fear, presumably not without cause, that the Left will push forward with its demands for greater income redistribution. The Left’s proposal to enact a comprehensive mandatory minimum wage immediately upon conclusion of the constituent assembly of the Bundestag offers a foretaste of what is to come. Moreover, the SPD learned from its experience in 2009 that it had problems scoring points with the electorate while in a grand coalition under Angela Merkel.

This situation has two consequences. First, the SPD will demand a high price for the coalition, a price that will presumably consist of raising the top personal income tax rate. The second consequence is that it is unlikely the coalition will hold together through the end of the legislative period. Why should the SPD allow the CDU and Angela Merkel to benefit once again from the advantages of holding the chancellorship? The SPD has considerable incentive to end the coalition in two or three years and to topple Angela Merkel with the support of the Left, form a minority government with an SPD Chancellor, and then call for new elections. The CDU would not only face the loss of the chancellorship, but in addition, the stigma of having broken its election promise of no tax increases. The excuse that all coalitions require compromises does not sit well with voters, as the FDP learned in its coalition with the CDU.

Since the CDU is fully aware of this, it will presumably refuse to go along with tax increases – in any event, not in a coalition with the SPD. These considerations lead to the conclusion that there will be no grand coalition. A Black-Green coalition (between the CDU and the Greens) is also improbable, since these parties have even less in common than the CDU and the SPD. This only leaves the alternative of new elections.  

Of course, this is all very speculative. One might hope that the SPD and the CDU might place the best interests of the nation above political strategizing. They could make use of their majorities in the Bundestag and the Bundesrat (the upper house of the German parliament) to push forward important projects such as transforming Germany’s energy economy, combating the European sovereign debt crisis, and reforming financial relations between Germany’s states and federal government. Once they have exhausted their substantive common ground, they could then call for new elections. However, deciding to take this road would demand more public spirit and sacrifice on the part of the SPD than the CDU. The next few months will reveal whether party tactics or a sense of civic responsibility will gain the upper hand.