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Coalition Agrees on Cuts to Close Budget Gap

November 7, 1996

BONN, Germany (AP) _ Germany’s governing coalition agreed Thursday on a plan to close a $2 billion gap in the 1997 budget and postponed a tax cut decision until December.

One third of the budget cuts will come from social welfare spending, most likely in job-creation programs, Finance Minister Theo Waigel said.

The remaining $1.3 billion in cuts will be spread among all other departments, he said.

The Free Democrats, the smallest of the three parties in the coalition headed by Chancellor Helmut Kohl’s Christian Democrats, had threatened to oppose the 1997 budget draft unless it gave a specific date for phasing out the ``solidarity surcharge.″

The 7.5 percent tax is used to finance reconstruction in former East Germany.

Under a compromise, the coalition will come up with a comprehensive tax reform plan in mid-December that will specify reductions in the solidarity tax, starting in 1998.

Waigel told Deutschland Radio that the Labor Office would have to absorb the biggest cut _ $667 million _ even as the office reported a sharp jump in unemployment for October.

German unemployment unexpectedly surged by 41,000 last month, the office said, in a further sign that the country’s economic recovery remains unstable.

The office indicated that the rise was connected to cutbacks in official make-work programs.

``If measures to support the labor market had increased by the amount usual for this time of year, there wouldn’t have been such a large rise in joblessness,″ the agency said in a statement.

The Labor Office plans to submit its own 1997 budget recommendations soon, and the office’s vice president, Klaus Leven, warned against further cuts.

``The more the government cuts back in actively creating jobs, the worse the effects on the job market will be,″ Leven said in Bonn.

Some 600,000 people in western Germany and about 750,000 people in eastern Germany are enrolled in such plans. The programs have frequently been accused of masking the extent of Germany’s unemployment problem.

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