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Monday, 18 November, 2002, 13:18 GMT
Schroeder warned over higher taxes
Finance minister Hans Eichel, left, and Chancellor Gerhard Schroeder.
The finance minister and Chancellor announcing the new tax
Germany's economy is still struggling, a report from the Bundesbank has said.


We cannot see an end to investment hesitancy

Bundesbank report
The Bundesbank, Germany's central bank, added that government budget plans would hurt the country's prospects for long term growth.

The warning came as Chancellor Gerhard Schroeder announced plans to introduce a capital gains tax of 15%.

The Bundesbank said that German economic output grew by just over 0.3% in the three months to the end of September.

That is roughly the same rate of growth seen in the first two quarters of the year.

Better outlook for shares

The bank said that Europe's biggest economy remained "too weak" to help counter growing unemployment.

"Above all [the economy] lacks the necessary prospects without which a revitalisation of investment and employment, in our experience, will not get underway."

The Bundesbank said that in the last few months the global economic outlook had again become clouded.

But it said that as long as the conflict in the Middle East did not escalate, then depressing influences, such as volatile financial markets and the rising oil price, should gradually ease.

Higher taxes

The bank's November report warned that the government's policy of increasing taxes would result in less private investment and could hit long term growth prospects.

"We cannot see an end to investment hesitancy," the bank said.

On Monday, the government announced plans to introduce a new capital gains tax of 15% to bring in extra revenues and try to help fill a hole in the budget.

The tax will affect sales of shares, mutual fund investments, and property bought to let.

The tax will apply at the full rate for property but, under a special rule, only half the gains on shares will be taxable - making the rate effectively 7.5%.

Even so, equity analysts said that the tax would damage investment in Germany.

See also:

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