A reform of the debt brake would make sense

The war of aggression against Ukraine has shattered the European peace order, with serious economic and social repercussions worldwide.

The conditions under which the new federal government developed its fiscal policy program in autumn 2021 have changed fundamentally. In Germany we have to expect higher prices for fossil energy and a high financing requirement for our energy and security infrastructure.

Price developments hit people on a tight budget the hardest. It endangers social cohesion and has the potential to destabilize our democracy: in the elections in France, we have just seen how authoritarian, far-right parties, also in cooperation with Putin, exploit the social divide for their own purposes.

We observe this development in democracies worldwide, in the USA, in Italy, in Hungary, in Brazil or in Turkey.

What we initiate today will decide whether future generations at the end of this century will still have the chance of a high quality of life and political self-determination in a peaceful, intact world.

In particular, the determined fight against the advancing climate crisis must guide our political action. In order to set the right course now, we need a functioning democratic state.

The increased challenges in security policy, the cushioning of price developments and the turbo conversion of our supply to renewable energies – all of this requires investments and thus greater financial leeway in public budgets.

In this situation, anyone who wants to pass the responsibility on to the private sector alone is repeating past mistakes. Our state must take responsibility for the key issues of the future.

The instruments are obvious: a reform of the debt brake that supplements it with a necessary investment rule would be a sensible step.

We cannot afford to play off the important tasks of climate protection and the expansion of renewable energies, social relief and our security against each other because we lack the financial leeway.

If the challenges of our financial policy change as fundamentally as they are at the moment, we must dare to question the existing instruments without any bans on thinking.

Alternatively, we could also create the necessary leeway by suspending the debt brake further in the event of an emergency. Especially in times of crisis, more ability to act is needed, not less.

Wealth taxes should rise

The second way to greater leeway in the budget is through additional tax revenue.
Hardly any other industrialized country taxes income from assets lower and income from work more heavily than Germany. This gap damages our social cohesion as well as our economic performance, since too much capital is not used productively.

The DIW puts inheritances and gifts in Germany at around 300 billion euros per year. Due to exceptions, only 9.8 billion euros come together in inheritance and gift tax, which remains with the federal states.

Stronger wealth taxation would contribute to fairness and the state’s ability to act in times of crisis.

In order to reduce the gap between wealth and income taxation, we also need targeted relief for small and medium-sized income earners, who suffer most from price developments.

We can secure your counter-financing through a courageous reform of the income tax: The income tax rate would be adjusted in such a way that small and medium-sized incomes would be relieved in a targeted manner. Moderately more taxes would then have to be paid on high incomes.

>>Read here: Climate money or tax cuts? Traffic light coalition argues about further relief package

If those who individually pay tax on income of more than 100,000 euros per year do a manageable amount more, we will create the balance. For married couples who are taxed together, this amount would be 200,000 euros.

This affects around ten percent of income tax payers. The relief would arrive where it is appropriate and necessary. At the same time, the state’s revenue base would be strengthened.

In times of crisis, all parts of our society must stand up for one another in solidarity – citizens, associations, trade unions and the private sector. In the current crisis, some companies are recording very high profits.

They earn from the consequences of the Russian war of aggression – some consciously and intentionally. These excess profits must be effectively skimmed off for tax purposes.

This would not only allow us to create more leeway, but also counteract distortions of competition caused by the war. Other countries like Italy are already showing the way, also with the new instrument of an excess profit tax.

The Federal Ministry of Economics is currently examining a feasible way at European level.

We need greater fiscal leeway

The state will by far not be able to compensate for every price increase. It is all the more important to provide targeted help to those who are suffering from the rising prices.

The traffic light relief packages with an increase in the basic allowance and the flat rate for advertising costs and the flat rate for energy prices are an important step in this regard. Measures such as the nine-euro ticket combine social and climate-positive relief.

In addition, we need systematic measures that work in a targeted manner. We must avoid market distortions such as the energy tax cut for diesel and petrol in the future. Such measures also lack the accuracy of the relief.

With a climate money that is paid to all citizens – including children – we will cushion the economic effects in a targeted social manner.

The climate money especially helps people with low incomes, a small pension or families. A payout concept is now being developed – an important appointment by the traffic lights as part of the relief packages.

The basic child security scheme, which Family Minister Lisa Paus is currently working on in cooperation with her cabinet colleagues, will be relieved in a similarly targeted manner.

The previous financial support services for children from the state are to be bundled there and replaced by a basic amount for all children from birth. Families with a smaller budget in relation to their income benefit the most from a flat-rate basic child security scheme, which also replaces the child allowances.

We need greater fiscal leeway. These will not arise by themselves, the state must now assume responsibility in order to solve the complex crises of our time at the same time.

We cannot afford to play off important tasks in climate protection and the expansion of renewable energies, social relief and our security against each other.

It is about solving the current crises without creating new ones. We can only get the chance to do so with honest debates without prohibitions on thinking.

The authors:

Jamila Schäfer is a member of the Bundestag (Bündnis 90/Die Grünen) and a member of the Budget Committee. She represents the left wing of the party.

Sebastian Schäfer is a member of the Bundestag (Bündnis 90/Die Grünen) and a member and chairman of the Budget Committee. He represents the Realo wing of the party.

More: If necessary, suspend the debt brake and reform taxes – this is what the IMF and the EU are demanding of Germany.

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