German industry fears heavy blow from budget plans

Executives in the ailing construction sector said Chancellor Gerhard Schroeder\'s plans to cut subsidies to first-time home buyers would hit housing starts, make thousands of workers redundant and destroy investor confidence in real estate. Equity analysts doubted, however, whether all the government plans would make it unscathed through parliament\'s upper house, where the opposition Christian Democrats hold a majority. Any impact on share prices would as a result be limited. \"If the government cuts support for home owners it would be like turning off the life-support machine for a dying patient,\" Gerd Koppenhoefer, chairman of the association of independent home builders, told Reuters. \"It\'s a disaster,\" he said of the sector that is made up mostly of small private businesses. \"It\'s going put 250,000 jobs at risk, choke off housing demand and ruin investor confidence.\" As part of a patchwork of measures to plug holes in the national budget, Schroeder\'s Social Democrats and their Greens coalition partners agreed to new taxes, subsidy cuts and the end of some industry exemptions from \"eco taxes\" on fuel and electricity. The newly re-elected SPD-Greens government want to eliminate a subsidy paid to first-time home buyers of about 24,000 euros currently spread over eight years and replace it with reduced payments for low-income families with children. The government also plans to eliminate exemptions to the controversial \"eco tax\" that had been granted to energy-intensive industries, a move expected to hurt the aluminium, steel and chemical industries. The Economic Federation for Metals (WVM) said that thousands of jobs in the aluminium sector could be at risk. Energy costs amount to some 40 percent of the industry\'s production costs. The German Chemical Industry Association estimates its members alone would face an additional bill of 900 million euros per year if the exemption from the eco tax was removed. Germany\'s economy grew just 0.6 percent last year and is expected to expand by an ever weaker 0.5 percent this year. Nearly one in ten workers is already unemployed. BLOW TO INVESTOR CONFIDENCE \"The government pulled the carpet out from under our feet,\" said Klaus Wiesenhuegel, chairman of the IG Bau construction workers union. He said the cuts would send many small businesses into bankruptcy and \"endanger tens of thousands of jobs.\" But Matthias Joerss, equities strategist at Sal Oppenheim in Frankfurt, pointed out major listed construction companies such as Hochtief AG do not depend heavily on Germany and on top of that have very little business in house construction. \"Obviously none of these measures are good for employment,\" he said. \"But I don\'t think all this will make it through the upper house. There will be some negatives for some sectors. But I don\'t think it will be a tremendous burden for share prices.\" Germany\'s construction industry has been contracting for years after a boom linked to unification in 1990. The number of new housing units finished in 2001 was 292,333, down 30 percent from 416,547 in 1999 and 50 percent below an early 1990s peak. \"These measures, especially the cuts to homeowners, are going to throw brakes on the economy,\" said Angela Merkel, leader of the opposition Christian Democrats. \"The eco tax increases are going to further erode Germany\'s competitiveness.\" Koppenhoefer said Germany already has the lowest home-owning quota in Europe with about 40 percent compared to levels between 60 percent to 80 percent in Britain, France and Spain. \"We\'re fearing a 50 percent drop in demand for new housing if these measures are not stopped,\" he said. Story by Erik Kirschbaum REUTERS NEWS SERVICE