As of: February 25, 2024, 12:11 p.m
By: Lisa Mayerhofer
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The traffic light coalition wants to help the weakening German economy with the Growth Opportunities Act, but the Union is blocking it.
Economists have calculated what would really help.
Berlin – Politicians and experts have been arguing about the state of the national economy for months.
While Chancellor Olaf Scholz (SPD) emphasized that the situation is better than the mood, Economics Minister Robert Habeck (Greens) and Finance Minister Christian Lindner (FDP) believe additional stimulus for the economy is necessary.
Growth Opportunities Act: Union tax relief blocked
However, the numbers tend to prove Habeck and Lindner right: the German economy currently has one foot in recession.
It shrank by 0.3 percent in the fourth quarter of 2023.
If there is another decline in the current first quarter, it will be referred to as a technical recession.
The Bundesbank expects “at best” stagnation from January to March
So what to do?
At the moment, the Growth Opportunities Act penned by Lindner is intended to provide relief, the light version of which was approved in the Bundestag today.
However, it is unlikely that the law will pass the Federal Council in March - because the opposition Union is blocking this despite massive criticism from business associations that have been waiting a long time for the help promised in the law.
Backlit by the morning sun, two workers stand on scaffolding at a construction site and talk.
Which tax models can help the German economy?
(Symbolic image) © Patrick Pleul/dpa-Zentralbild/dpa
“This growth opportunity law is a gentle breeze”
The law has already been significantly streamlined after the first blockade in the Federal Council last year.
It now provides relief for companies amounting to around three billion euros.
Among other things, better tax depreciation options are intended to stimulate struggling housing construction.
To promote investments, so-called declining balance depreciation should be introduced.
Special depreciation is to be substantially improved for small and medium-sized companies.
Research and development by companies should also receive greater tax support.
Hesse's Prime Minister Boris Rhein (CDU) resisted blocking the law for political reasons and denying the economy important help: "This Growth Opportunities Act is not being blocked by us, this Growth Opportunities Act is a mild breeze," he said on Friday on ZDF -“Morgenmagazin”, after all, it could only mobilize 0.05 percent growth.
“We are dealing with a fire in the economy – and you don’t put it out with a garden hose, but with a fire hose.”
Researchers calculate tax models in relation to international competition
But what could really help?
Working with tax relief seems to be a good idea after all: According to the Leibniz Center for European Economic Research (ZEW), a German company incurs an average of 28.5 percent in taxes on a profitable investment project, taking into account all discounts and depreciation options.
That is almost ten percent more than the EU average, reports the
Süddeutsche Zeitung (SZ)
.
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The ZEW has now calculated which reform would have the most favorable impact on global tax competition for Germany.
According to the
SZ,
both the return to the degressive Afa and the solidarity exit would reduce the effective tax burden on companies from 28.5 to 28.3 percent and 27.8 percent, respectively.
The former is planned in the Growth Opportunities Act, the latter is another idea from Linder.
According to the researchers, a 100% “super depreciation” based on the example of Great Britain, which is also found in the coalition agreement, would have a stronger effect.
This is a way to very quickly deduct investment costs from taxes.
This measure would reduce the effective tax burden to 27.4 percent.
However, the greatest impact would be reductions in corporate, income or trade tax rates, which would then reduce the companies' nominal payment obligation from a good 31 to 25 percent.
Taking into account tax saving opportunities, the average burden falls to 23.5 percent, reports the
SZ
.
This would suddenly find Germany in the middle of the West European investment locations.
Disadvantage: High revenue losses for the state
The disadvantage: These reforms all lead to significant revenue losses for the state - probably in the billions.
“Overall, it remains clear,” says Katharina Nicolay, deputy head of the ZEW Research Department on Corporate Taxation and Public Finance, “that a significant improvement in the attractiveness of the location for tax purposes is not possible without significant short-term tax revenue shortfalls.”