(Bloomberg) -- Germany’s conservative chancellor candidate, who is leading the polls ahead of a February election, proposed cutting €100 billion ($105 billion) from migration and social spending in an effort to fix the country’s finances.
The plan highlights CDU leader Friedrich Merz’s stark contrast to policy under Chancellor Olaf Scholz, who has avoided reductions to social welfare despite the massive cost to taxpayers. Speaking at a press briefing in Berlin, Merz took early aim at Scholz, laying the blame for Germany’s economic decline at the Social Democrat’s feet.
The German economy is set to shrink for a second straight year due to dwindling exports and high energy prices following Russia’s invasion of Ukraine. Whoever gets to form the next government will need to secure funding and public support for the massive investments needed to modernize the country’s crumbling infrastructure, shore up defense capabilities and navigate Donald Trump’s return to the White House.
“Scholz has lost the confidence of investors, who are leaving the country,” Merz, who heads the CDU/CSU alliance, said on Tuesday, adding that he wants to lower the corporate tax rate to 25%. “We are ready and able to take on government responsibility in Germany again.”
Germany has an average combined corporate tax rate of 30%, according to the OECD.
Germany’s proposed 2025 budget is €488 billion, with labor and social spending making up €179 billion.
The campaign season kicked off on Monday after Scholz lost a confidence motion in the lower house of parliament, triggering a new federal election that will likely take place on Feb. 23, seven months ahead of schedule. Scholz’s minority government will remain in place until a new administration is formed.
What’s Ailing the German Economy? Can It Be Fixed?: QuickTake
Scholz’s Social Democrats, along with his former coalition partners the liberal Free Democrats and the Greens, have suffered in the polls.
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Merz’s CDU/CSU alliance leads with support at around 31%, the far-right Alternative for Germany — or AfD — is second with 19.8% and the SPD third at 17%, according to the latest Bloomberg polling average.
The Greens are fourth with 11.2% and the BSW — a new far-left party founded in January — fifth at 7.5%. The Free Democrats, led by former Finance Minister Christian Lindner, whose firing prompted the dissolution of the governing coalition, remains in danger of falling below the 5% threshold needed to get into parliament. The party is currently polling at 4.9%.
After the election, it will take weeks, if not months for a new coalition government to be formed. Although the CDU/CSU is leading in the polls, it’s far from winning an absolute majority and would need at least one, and potentially more, coalition partners. And the more parties that qualify for seats in parliament, the more difficult it is to build an alliance.
Merz has proposed an immediate halt on the flow of irregular migration into Germany, income tax cuts, continued support for Ukraine, and a commitment to the constitutional debt brake. On Tuesday, he proposed that €100 billion ($105 billion) could be saved by cuts in migration and social aid.
He also sought to manage expectations, saying “I won’t promise that everything will improve immediately.”
Scholz and the Social Democrats also presented their election program Tuesday, laying out their plan to get the economy back on track. The SPD proposed a 10% tax rebate for companies investing in Germany and the creation of a €100 billion investment fund to modernize the country’s infrastructure.
To boost demand for e-cars, the SPD is also considering tax rebates for EV buyers. On top of this, Scholz wants to loosen the country’s strict borrowing limits, lower energy costs for heavy industries by capping the grid fees and stimulate domestic demand by lowering the income tax for most households while increasing the tax burden on those earning the most.
“The SPD will put its focus on the economy and creating jobs so that Germany remains a strong industrial nation,” Scholz said.
--With assistance from Thomas Hall and Christoph Rauwald.
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