Germany’s Scholz Sees Holdouts Eventually Backing Tax Deal

(Bloomberg) -- German Finance Minister Olaf Scholz said countries holding out against the global corporate tax deal will eventually come around because of the widespread support it has received.

Countries accounting for 90% of global economic output are backing the deal, which shows the momentum behind the effort, Scholz -- the Social Democratic candidate to succeed Angela Merkel as chancellor -- said Friday in an interview with Bloomberg TV.

“There is a big train now on the track and I think it will go to its end,” he said in Washington after talks with U.S. Treasury Secretary Janet Yellen, adding that he expects the U.S. Congress to support the deal.

Scholz is an ardent backer of an overhaul of the global tax system, which took a major step forward on Thursday, when 130 countries and jurisdictions backed a plan to set a minimum corporate tax rate and establish a new regime for sharing the taxes imposed on the profits of multinational firms.

He will now have to help secure support from Ireland, Hungary and Estonia, which refused to back the plan. The European Union members could effectively veto adoption or at least force the bloc to resort to exceptional and untried legal measures for implementation.

Scholz indicated that the EU could offer incentives to secure their support, saying the bloc is based on solidarity and gives “a lot of money to countries that have a need for a better development.”

Read more: Global Tax Deal or Not, EU Faces Obstacles to Implementation

Scholz said Germany was keen to ease U.S. concerns over the Nord Stream 2 gas link with Russia and will seek to maintain a range of energy sources and protect the interests of Ukraine, which will be bypassed by the new pipeline.

“We work very hard to make sure that the gas transit agreement between Ukraine and Russia is prolonged,” Scholz said. “We feel responsible for the gas transit business of Ukraine, even in the future -- not just the next two, three years but in the next decades.”

While Scholz played a key role in unleashing a wave of spending to protect Europe's largest economy from the fallout of the coronavirus, the 63-year-old former labor lawyer from Hamburg is a long shot to become German chancellor.

His party has slumped along with other center-left movements in Europe and is polling third -- as much as 15 percentage points behind Merkel's conservative bloc.

Extra Spending

Scholz pointed to his popularity in the polls and said he expects support for his party to rebound as it gets closer to the Sept. 26 election.

To bolster the recovery of Europe's largest economy, Scholz has proposed suspending constitutional borrowing limits for a third straight year with 99.7 billion euros ($118 billion) in additional borrowing in 2022.

After abandoning its tradition of balanced budgets to deal with the pandemic, German fiscal policy will be a key issue following the election.

Scholz's Social Democrats and the second-place Greens are pushing for a looser approach to spending, while the conservative bloc -- the front-runner with about 30% poll support and the likely senior partner in the next government -- wants a return to Germany's so-called debt brake as soon as possible.

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