SPD plans for higher tax revenues: who pays the bill?
Created: 01/14/2023 09:09
Prof. Volker Wieland is endowed professor for monetary economics at the University of Frankfurt.
Until the end of April 2022, the economist was also a member of the German Council of Economic Experts.
© Jürgen Heinrich/Maximilian Litzka/Imago
In Germany, the state is becoming more and more expensive for citizens and companies.
However, the increasing expenditure is increasingly burdening the economy and households - at the expense of the competitiveness of the German economy, warns the former economist Prof. Volker Wieland.
Instead of higher taxes, existing income needs to be prioritized, writes Wieland with a view to SPD plans to develop a new tax concept.
Frankfurt – The SPD is setting out to clarify who should now pay for the “double boom for affordable energy”.
Above all, it is high time to pay more attention to social justice and distribution.
In addition, there are still important future investments to be made in education, climate protection, energy supply, mobility and health.
But the state has a revenue problem.
Therefore, taxes would have to be increased and new taxes introduced.
After "leaving no one behind", the "rich" taxpayer should now lose feathers.
Tax burden on economy has increased
One might think that social spending has been cut over the years.
In fact, monetary social benefits and social benefits in kind combined have increased from 806 billion euros in 2018 to 941 billion euros in 2021.
That is an increase of almost 17 percent.
At the same time, economic output, i.e. the nominal gross domestic product (GDP), only increased by seven percent.
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As a result, the proportion of earnings that the state spends on social affairs has increased - from almost 24 percent in 2018 to over 26 percent of GDP in 2021. So it's not the volume of social spending.
If so, then the SPD Commission would have to deal with how these extensive funds can be better used.
As far as revenue is concerned, the tax ratio – i.e. taxes and social security contributions in relation to economic output – rose from 40.3 percent in 2018 to 41.2 percent in 2021.
This has increased the burden on the economy.
At the same time, state activity was significantly expanded overall.
Total government spending, which amounted to just under 45 percent of GDP in 2018, has already accounted for 51 percent and thus more than half of economic output in 2021.
The federal government must improve the competitiveness of the German economy
However, the German economy is anything but good.
If inflation is factored out, then real economic output just barely exceeded the pre-Corona crisis level of the end of 2019 in autumn 2022.
A slight decrease is expected for 2023.
Industry, the powerhouse of the German economy, is lagging behind.
Production there is still almost ten percentage points below the peak of 2018.
Some believe that the energy crisis has already been successfully overcome because industrial production is currently increasing slightly.
But that's because German companies that have a large order backlog can fill orders thanks to more available intermediate products.
At the same time, however, energy-intensive production is already declining significantly due to high energy prices.
Companies are relocating production and investments abroad - particularly to North America, where energy and especially natural gas will remain far cheaper for years to come.
The federal government must act urgently to improve the competitiveness of the German economy.
This is the prerequisite for maintaining and increasing prosperity in Germany.
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In addition to energy policy, financial and tax policy are also in demand
The current energy crisis is about increasing the energy supply quickly and significantly.
The high prices give an incentive.
Energy policy must reform the regulatory framework and streamline administrative processes so that the necessary approvals can be granted much more quickly - whether it's about energy production in Germany, imports or the construction of distribution networks.
Fiscal and tax policy must ensure that it is worth working and investing in Germany and developing and implementing innovations.
In Germany, income from work is one of the most heavily burdened by taxes and social security contributions within the OECD countries.
Germany is also in the top group when it comes to corporate taxes, specifically the effective average tax rates that influence corporate investment decisions.
Future commissions of political parties and the federal government as a whole should therefore focus on the question of how the high state expenditures can be restructured and prioritized accordingly, instead of taking up the cause of further increasing the tax burden and the state share of the economy.
About the author: Prof. Volker Wieland is an endowed professor for monetary economics and managing director of the Institute for Monetary and Financial Stability (IMFS) at the Goethe University in Frankfurt. Wieland received his doctorate from the US elite university Stanford and then worked for the US Federal Reserve. Between March 2013 and April 2022, the expert in monetary theory and monetary policy was a member of the German Council of Economic Experts.
