German economy in a state of crisis / Experts: Taxes should be reduced

2024-02-08 09:26:00, Kosova & Bota CNA

Although the coalition of the three ruling parties in Germany is certainly not an ideal example of unity, the liberal leader and Minister of Finance, Christian Lindner, as well as the Minister of Economy, the environmentalist Robert Habeck have at least one common goal. They think that entrepreneurs in Germany should be relieved of many taxes in order to strengthen the economy. The government is debating the right way to achieve this goal.

Habeck spoke in favor of a special investment fund that would provide tax relief. Finance Minister Lindner is not in favor, arguing that this would mean an increase in debt. Lindner proposed the abolition of the solidarity tax for companies - this tax is paid in the west of the country for the development of the eastern part, the former GDR. Greens leader Ricarda Lang criticized Lindner's proposal, claiming she had not heard how the missing funds would then be compensated.

Two different philosophies

Stefan Kooths of the Institute for the World Economy (IfW) from Kiel believes that these are two completely different philosophies. According to him, Habeck does not care about reducing taxes for companies in total, "but to immediately connect the management of the economy with it". He must formulate exactly which specific investments are subject to tax relief.

And under Lindner's proposal, says Kooths, there is no aim to manage economic flows, but a general reduction in costs for companies. The head of the Institute for Economic Research (ifo) from Munich, Clemens Fuest, says that the German government lacks an economic-political strategy. "There is a big divergence between the Ministry of Economy and the Ministry of Finance and therefore a lot of uncertainty", says Feust.

Economists are divided when it comes to new debt. Karsten Basensky, chief economist of ING Bank, believes that strengthening the economy is not possible without borrowing: "When we have government spending that reaches almost fifty percent of the gross domestic product, then theoretically I have the right to say, that we can catch something here and there." But the political reality is different, so it is easier to get new loans.

Stefan Kooths doesn't think so. He opposes easing the credit economy and warns that there is already a conflict over the distribution of money: "We are entering a phase of demographic change, which unfortunately brings with it the intensification of conflicts over distribution in Germany." Kooths adds that the loans only mean postponement of the conflict for the future.

What does the chancellor think?

German Chancellor Olaf Scholz intervened in the debate between Lindner and Habeck. He noted that a "Growth Opportunity Act" should be drafted, which provides tax incentives for investments and technologies that help protect the climate.

"I hope that even with the consent of the Länder, something will come of this very concrete and practical project, which should facilitate the investment activity of companies", said Scholz. Currently, the law is stuck in the Mediation Commission between the two parliamentary chambers. The Länder criticize the law , because they believe it would charge them most of the costs. That is why it is unclear when the law will be approved. The Mediation Commission will meet again on February 21.

Habeck fears that the countries could reduce the planned economic relief by eight billion euros: "In the end the value will be three billion, so the package is getting smaller, almost homeopathic," warned Economy Minister Habeck, in a presentation on the first German television, ARD.

Germany is weakening internationally

An economic-political storm is brewing in Berlin, which has been caused by inaction elsewhere. In January, according to polls, the mood of businessmen deteriorated again. More and more companies report missing orders in both industry and service activities. The consequences are predictable.

Germany will continue to lag behind international competition. Economists predict higher growth in Spain, Italy or France than in Germany. It seems that the difference compared to the United States of America will be particularly large, because the economy there has recently grown by three percent.

Low taxes are not a magic wand

Economists are unanimous in their assessment that low tax spending alone is not enough to help the economy recover. Kooths notes that the economic attractiveness of a country depends on a number of factors. But he warns that Germany is slowly running out of arguments to convince the world that it is still a good place for businessmen./ DW