MacroScope

Long shot ricochets in Steinbrueck’s quest for legacy

August 7, 2009

As the German election approaches and with it a chance he may not hold onto his job, Finance Minister Peer Steinbrueck took a long shot this week to try and boost his legacy as the man who took on the tax dodgers and won. While some of the new rules he proposed in a now trademark campaign against tax fraud failed to pass, the 62-year-old Social Democrat can only have boosted his popularity with voters and upped his chances of holding onto the Finance portfolio after the September 27 vote.

The idea was to give the Finance Ministry a “free hand” in drawing up its own list of countries and jurisdictions it deems uncooperative in efforts to crack down on tax evasion. Finance would thus have a bigger stick to wield as it signs new bi-lateral tax agreements next year, since the threat of sanctions on operations in Germany would have been immediate and easier to execute without the hurdle of consensus in Berlin. Or so the thinking went.

The proposal managed to stand its ground for a day. After supporting the plan on Monday, the Finance Ministry was forced to retreat under a hail of criticism from business lobbies, and when cabinet outlined its new procedures on Wednesday, it was clear that any future sanctions decisions will also have to be agreed by the Foreign and Economy ministries.

Steinbrueck has led Germany’s drive to stamp out international tax evasion with a swagger that’s made many a headline. So whatever happens come election day, the public will likely remember him for the provocative image he cultivated. Who can forget last year’s call for a “carrot and stick” approach to Switzerland over the tax issue, and to his comparison of Germany’s southern neighbour to “Indians” running scared from the cavalry – presumably Steinbrueck himself. Or captain-of-industry Klaus Zumwinkel, once chief executive of Deutsche Post, who had his house raided as part of a tax-dodging probe. Liechtenstein, the tiny Alpine nation where he had hidden money in a trust, signed a tax information deal with Germany in July.

Had Steinbrueck’s plan been approved, it would have effectively given the Finance Ministry a fast track to impose sanctions that would have extended to future occupiers of the office. In that sense it was a bold gamble, although one probably doomed to failure from the start. While the threat of sanctions is essential to push rampant offenders in line with OECD tax transparency standards, it’s hard to imagine a central government granting one of its cabinet positions – potentially occupied by an anti-tax evasion crusader – carte blanche to fight independent battles.

Steinbrueck took on the finance job with plans to balance Germany’s budget by 2011. At one point, before the financial crisis sent that idea to the shredder, it had even looked possible for 2008. What’s left for legacy is the battle against tax fraud. With the OECD guidelines he championed now seen internationally as close to sacrosanct, Steinbrueck’s reputation looks secure. But the cavalry will not have free reign.

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