Tax cuts agreement raises prospects for German coalition

Berlin: German Chancellor Angela Merkel's conservatives and the centre-left Social Democrats (SPD) have agreed to provide income tax relief for high earners, a source said on Monday, signalling progress in their talks on forming a coalition government.
Tax relief was an election promise by Merkel's conservatives, and the initial agreement to raise the bar for a top income tax rate to an annual income of 60,000 euros indicates that the SPD are willing to compromise.
Sealing a deal with the SPD on renewing the coalition with the conservatives that has governed Germany since 2013 is Merkel's best chance at securing a fourth term in office after an election in September that weakened both parties.
The compromise on taxation is only a small step in the talks between the would-be partners who have to bridge major differences on immigration, the future of the European Union and the economy.
The source said the SPD, Merkel's Christian Democrats (CDU) and their Christian Social Union (CSU) Bavarian allies want to raise a top tax rate of 42 per cent that at the moment applies for those who earn 53,700 euros and above ($64,375.56) annually.
Merkel, who in November failed to form a coalition with the Greens and the pro-business Free Democrats (FDP), said on Sunday at the start of five days of talks with the SPD that the negotiations could succeed.
Members of her conservative party sounded similarly upbeat on Monday.
"Yesterday, we worked very factually and we did well," said Julia Kloeckner, a senior member of the CDU.
"We are aware of the fiscal limitations and we are optimistic."
SPD leader Martin Schulz has vowed to put any agreement with the conservatives up for a vote by party members, many of whom are opposed to a so-called 'grand coalition' of the two largest parties in parliament.
The SPD want to improve the right of workers and scrap Germany's dual healthcare system of premium private care and more widely accessible public care to replace it with a single "citizen's insurance".
They also oppose a plan by the conservatives to extend a ban that expires in March on family reunifications for some asylum seekers.