investment conditions. the government ’ s plan for a reform of business taxation now aims to give relief to enterprises and thus create conditions that are more favourable to growth via the supply side. this reorientation is being accompanied by a further two - stage reduction in income tax in 2003 and 2005 which also covers the top rates. in 2005, the top rate of income tax would then be 45 % compared with 51 % at present. the cdu / csu parliamentary group in the bundestag would like to put through a reduction in the top rate of tax to 35 % by 2003. the government ’ s planned tax reform will result in a substantial tax relief for enterprises in net terms as well, especially as a result of the sharp reduction in the corporate tax rate to a uniform level of 25 %. at present, the corporate tax rates are 40 % on retained profits and 30 % on distributed profits. the tax cut will strengthen germany ’ s attraction as an industrial location. the planned tax exemption of corporations ’ profits from the sale of equity stakes will facilitate corporate restructuring. germany is likely to become more attractive as a location for holding companies. in all, the tax plans are an important and welcome beginning which should be followed by further steps. from the point of view of the tax system and in terms of a consistent and equal taxation of all types of income, the plans do have some shortcomings. above all, problems are raised by the marked preferential tax treatment of profits retained in enterprises, which cannot be justified on macroeconomic grounds. this preferential treatment might also result in allocation distortions. ultimately, a substantial reduction of all rates and a comprehensive widening of the tax assessment basis would be needed. whereas approaches to a solution are becoming evident in fiscal policy, this cannot be said for the severe structural problem of the statutory system of old - age provision. here, the ageing of the population has led to an implicit public sector debt building up on a major scale. with the existing system of old - age provision this debt can only be repaid by further increases in employees ’ and employers ’ contributions. official projections assume that this would result in the contribution rate having to rise to 24 % by 2030. in addition, there would also be growing burdens in health and nursing care insurance. the associated obstacles to growth and higher costs would be a severe strain on the development of the economy. the reform measures proposed so far are not enough to prevent such a questionable development. above all, what

andreas dombret : in support of coco bonds op - ed by dr andreas dombret, member of the executive board of the deutsche bundesbank, published in frankfurter allgemeine zeitung, 21 february 2015. * * * one of the key outcomes of regulatory reform in the banking industry, launched in 2008, is that banks need more and more capital. to illustrate this point, the new basel iii regulatory framework requires credit institutions to hold significantly more higher - quality capital than before. in addition, global systemically important banks need to additionally strengthen their capital base so that they can bear potential losses unassisted. the idea is to enhance banks ’ resilience and avoid putting taxpayers back on the hook for banks ’ losses in future crises. although these reforms are good, they raise the question of how banks will be able to cover growing capital requirements. with this in mind, we should turn our attention to a different kind of capital instrument. known as “ contingent convertible bonds ”, or “ coco bonds ” for short, they are bonds which convert automatically from debt to equity upon a specific trigger event – for instance, if an institution is faced with insolvency or if its tier 1 capital ratio drops below a certain threshold. in such cases, coco bonds increase the bank ’ s capital buffer. this new type of bond is attractive to credit institutions for several reasons. one is that, under certain conditions, coco bonds are recognised by supervisors as capital. these conditions hinge on the category to which the capital is to be assigned and reflect, for instance, subordinated status and long - term availability of the capital. the issuing bank ’ s discretionary scope for deciding whether or not to make coupon payments to investors is a further condition. another selling point for coco bonds to banks is that interest payments on the bond are tax - deductible. coco bonds can be attractive to institutional investors as well ; owing to their particular risk, they promise superior returns to those on normal bonds – which accounts for much of their appeal to investors, particularly in the current low - interest - rate setting. so are coco bonds a “ silver bullet ” for banks? in germany at least, their importance has been marginal up to now. up until the end of last year, these bonds were issued mainly by large banks in spain, switzerland and the united kingdom. their total volume amounted to some €50 billion. only two german institutions issued coco bonds in 2014. uncertainties surrounding the