Are German Tax Authorities Using "Gestapo Methods?"

When Khomeini's Islamist regime once offered a prize for the murder of the writer Salman Rushdie, whose Satanic Verses had offended Sharia law, the western world decried what it called an act of barbarism.

Now the German tax authorities have launched their own Fatwa against the tax-evading rich and well-off who attempt to escape a fundamentalist tax regime. But in the EU, this fatwa has only provoked approbation.

The first measures taken by the new German government in fall 2005 resulted in the largest tax increase in the history of the Federal Republic of Germany.

During the preceding election campaign, the Christian Democrats and Social Democrats were still relatively restrained in their calls for an increase in the value-added tax: the Christian Democrats called for a one percent rise and the Social Democrats for two percent. After six weeks of negotiations between the parties in preparation for forming a "grand" coalition government, they had agreed on a "compromise": three percent.

Two years later, the German government has achieved no economic reform of note, no budget relief, no reduction of public spending. Because the state is willing neither to save nor to shrink, the citizen has to be ever more furiously squeezed.

The privacy rights of bank clients in Germany were effectively abrogated years ago. The capital gains tax was raised and a special so-called "tax on the rich" was introduced. "Tax sinners" must now reckon with jail sentences of up to ten years and the tendency is toward even greater severity. The show trial against Deutsche Post chief Klaus Zumwinkel, the most high-profile "catch" of the German investigators, can serve as a symbol for a generalized mood of hostility to economic enterprise.

In Switzerland, Germany's aggressive actions have provoked concern. In a first statement, made in the heat of the moment, the President of the Swiss Banking Association, Pierre Mirabaud, said that he was reminded of "Gestapo methods." Switzerland's governing Federal Council, on the other hand, claimed to be unworried. But in a series of interviews, Germany's former Finance Minister, Hans Eichel, made clear that the German tax authorities most definitely had Swiss "bank secrecy" in their sights. One had hoped, Eichel openly admitted, to have made greater gains from a recent agreement between the EU and Switzerland on the taxation of interest income. Since the proceeds evidently failed entirely to satisfy the German treasury, the pressure has now to be raised. Eichel's successor, current German Finance Minister Peer Steinbrück, agreed: "We want to declare war on all the tax havens in Europe," he said.

What is this conflict about? Germany considers tax evasion to be a capital crime. Switzerland, by contrast, regards it as a minor offense. If a tax evader is caught in Switzerland, he pays the back taxes plus a fine. In Germany, he is dragged out of his home in the early morning by the police, while the television cameras roll.

Just to be clear: every country has, of course, the right to its own tax and judiciary system. Germany is perfectly free to combat tax evasion with the most draconian sanctions known to the West. But Berlin wants more than that: it wants its tax evasion laws to apply also outside Germany's borders. It is expecting German tax evaders to be pursued as pitilessly by Liechtenstein or Switzerland as they are in Germany. If "colonialism" is the attempt by one country forcefully to impose its legal system upon another, then Steinbrück's "war on tax havens" is colonialism pure and simple.

But fundamentally still more is at stake. What is hidden behind the high-sounding formulas of the German politicians - "solidarity," "justice," the "responsibility of the elites" - is in fact nothing other than a cold-blooded attempt by powerful Germany to neutralize a small but successful economic competitor: Switzerland.

More than 20,000 highly-qualified Germans leave their country for Switzerland every year. Apparently, one cannot bear the fact that so many Germans - and not the dumbest of the lot - freely choose to go into exile, attracted by the prospect of lower taxes, higher salaries, and fewer government dictates. But instead of trying to solve Germany's own structural problems, Berlin has chosen to put pressure on countries that perform better. Germany wants to reduce its competitive disadvantage with respect to Switzerland by imposing its own disadvantages on Switzerland.

The announced combat against bank client privacy rights is only the beginning. With disarming frankness, Eichel explained in his interviews that during his time on office his aim had indeed been to render financial placements in Switzerland less attractive by getting Switzerland to raise taxes on interest income. Soon, Eichel noted proudly, Germany would have lower interest rates and even a competitive advantage.

One would have to be naïve to believe that things will calm down again after Germany's anti-bank offensive. On the contrary, there are widespread suspicions that Germany and the EU want now completely to eliminate systemic competition among states in Europe. First bank-client privacy protections were eased and now they are supposed to be suppressed altogether.

For months now, the EU has been attempting to influence the taxation of holding companies in the Swiss cantons. What is next? After the banking system, will the tax system likewise be rendered identical across all borders everywhere on the continent? And what about the "European social model": the "European social model" that is so "just" and "responsible" and exhibits so much "solidarity" - but is, unfortunately, financially ruinous?

Is it impossible that in its name, Switzerland will someday be forced to adjust its own far more liberal labor market legislation downwards to the EU standard? Germany's tax colonialism is a tragic and misguided policy.

Roger Köppel is the editor in chief of the Swiss weekly Die Weltwoche. Translated from German by John Rosenthal