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Germany's Finance Minister Lars Klingbeil has set the stage for a clash with Chancellor Friedrich Merz, calling for higher taxes on the wealthy and companies as part of measures to revive Europe's largest economy.
The 48-year-old Social Democrat, who also serves as vice chancellor, on Wednesday called for higher taxes on high-income earners and the wealthy to help finance relief for the middle class. He also argued for a surprise tax on excess energy profits due to the Iran war, which Merz quickly opposed.
But Klingbeil also pledged to push Germans “to work harder.” He proposed reforming the tax system to get more women to work full-time, an early promise his party abandoned when it entered a coalition with Merz’s Christian Democrats (CDU). He also pledged to remove current incentives for early retirement.
His proposals come as Klingbeil seeks to strengthen his authority after a series of poor results in regional elections, including Sunday's defeat in Rhineland-Palatinate, which handed the CDU a landslide victory after 35 years of Social Democratic rule. The result prompted more calls from within the SPD for Klingbeil to resign as party co-chairman.
But while his speech is partly a response to internal criticism about the direction the party is taking, some of the measures put Klingbeil on a collision course with the CDU. In coalition negotiations last year, the SPD agreed to drop plans to correct a tax distortion that contributes to the fact that about half of employed women work part-time, compared with one in four across the EU.
On Wednesday, Merz expressed "reservations" about an unexpected tax on excess profits.
“I do not believe it is possible to determine with legal certainty what constitutes excess profit and how it should then be taxed. The finance minister has made the proposal. We are discussing the issue. I have expressed my concerns ,” the chancellor told MPs.
But Klingbeil's speech also showed a willingness to liberalize the labor market, for example by extending fixed-term employment contracts for new businesses, and by overhauling the social welfare system to ensure that "working harder always pays off."
Holger Schmieding, Berenberg's chief economist, said Klingbeil's plan was "by center-left standards, an important step forward."
" A strong focus on deregulation, pension reform with incentives to retire later instead of earlier, tax reform that rewards workers for working harder and earning more, all of this is positive ," he said.
Klingbeil is seeking to establish himself as a reformer in the model of former Chancellor Gerhard Schröder, who pushed through unpopular labor market reforms that economists widely credit as boosting Germany's growth in the decade ahead.
"The SPD had created a system in which it is becoming less and less worthwhile for many people to work ," Klingbeil said.
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