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Schröder faces tax revolt
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March 1, 1999: 10:50 a.m. ET
Two more German corporate giants come out against government's tax reforms
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LONDON (CNNfn) - The new German government is facing a bruising confrontation with big business over its planned tax program, after two more large companies warned the administration to think again.
Energy group RWE and conglomerate Viag both asked Chancellor Gerhard Schröder's coalition government to reconsider proposals to raise already-high corporate tax levels.
The move comes less than a week after insurance giant Allianz (FALV) threatened to transfer large parts of its business out of Germany if taxes are raised.
RWE's (FRWE) chief executive Dietmar Kuhnt echoed these sentiments in a letter to the leaders of all parties in the German parliament, in which he disclosed that the reforms could increase the company's tax liability by 25 billion marks ($14 billion).
Viag's (FVIA) boss Wilhelm Simson, underscored the disquiet felt by German business, when he asked the government to "urgently rethink" the proposals.
And analysts expect more companies to speak out as the March earnings reporting season gets into full swing. "Part of this is political posturing. But what companies are realizing is that arrival of the euro is making German corporate costs structures increasingly uncompetitive," said Ian Harnett, European strategist at BT Alex Brown.
"It is not so much an issue of which company complains next, it is more a question of which companies won't," he added.
Sharon Coombs, European equity strategist at HSBC Securities concurs: "German tax reform comes at a time when other European countries are loosening up their tax regimes. It is no surprise that German companies are angry."
German corporate tax rates are among the highest in Europe at between 40 and 47 percent. This compares with U.K. rates of up to 30 percent.
Analysts remain convinced that unless the government performs an about-face, German companies will move more and more investment abroad. "This will lead to rising unemployment levels in Germany," said Harnett.
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RWE
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