Conflicts within this ministry are thus programmed. After all, the management of the house has so far upheld the social market economy as the “basis of our free, open and solidary society”.
Because the central idea of this economic order is “to protect the freedom of the economy and a functioning competition and at the same time to promote prosperity and social security in our country, for present as well as for future generations”, it says on the website. Despite the participation of the FDP, one cannot help but get the impression that the new government will probably give economic freedom less importance.
Actually, it would have required intellectual honesty to point out that climate protection and economic growth do not go hand in hand. Because if resource-saving production were economically viable, the companies would have realized it long ago. And if strict climate protection laws were to benefit the domestic economy in the long term, then such laws would long ago have been introduced in all countries.
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This is not an argument against climate protection. Because economic policy does not aim to maximize profits for domestic companies. If companies ignore relevant factors in their own calculations, government intervention is called for. Every economics student learns in the first semesters that an overall economic optimum is achieved when negative external effects are internalized, i.e. when those who cause damage compensate those who have suffered damage.
Climate change is not a local but a global problem
But unlike noise, garbage or sewage, climate change is not a local, but a global problem. If, for example, the USA, China or the relevant frontrunner Qatar emit large amounts of CO2 per capita, these countries benefit greatly from it, while the damage is spread across the whole world.
Prof. Bert Rürup is President of the Handelsblatt Research Institute (HRI) and Chief Economist of the Handelsblatt. For many years he was a member and chairman of the Advisory Council as well as an advisor to several federal and foreign governments. You can find out more about the work of Professor Rürup and his team at research.handelsblatt.com.
The well-meaning world dictator who could correct and balance this is at best in textbooks. The Federal Government is thus faced with the conflict of goals of pushing national climate protection and at the same time not jeopardizing the competitiveness of its own national economy.
To make matters worse, the growth prospects will very soon deteriorate due to demographic change. By the end of the current legislature, the German economy is likely to have lost a third of its current potential growth of 1.4 percent, only to then grow by less than one percent. As this development continues, increases in macroeconomic output will no longer be a matter of course from the 2030s.
In the past seven decades or more, economic growth has not only been the source of increases in income and prosperity in Germany. Without this growth, the considerable expansion of the welfare state would not have been financially viable.
Given that society is about to age, it has long been highly forecast that the social security system will be confronted with a massive surge in costs that will last for almost 20 years with a shrinking financial base, which will further dampen prospects for growth. The traffic light coalition seems to be ignoring this.
Labor is becoming scarce
The determinants of the growth of any economy are the supply of capital and labor, as well as productivity gains. Labor is foreseeably becoming scarcer; From 2024, the labor supply is likely to decline because more workers are retiring than young people are moving up or immigrating from abroad.
The compensation options through more immigration or higher labor force participation appear to be largely exhausted. The participation rate of the population is unlikely to increase any more, as many women are already working at least part-time and the number of employed pensioners has risen noticeably in recent years. At the same time immigration decreased.
There is no one-size-fits-all solution to the demographic labor shortage.
Rather, it is important to adjust various levers so that more people increase their job offer. At the moment, mini-jobs are very attractive for many second-earners because they are tax-free from the employee’s point of view.
Therefore, in many cases, it is not worth making more than the threshold. Every wage increase therefore leads to fewer working hours in this segment. The increase in the threshold to 520 euros planned by the new government would lead to a slight increase in the supply of jobs, but this is counteracted by the rising minimum wage.
In addition, the hurdle for taking up an activity that is subject to social security contributions has been raised. Especially in times of an emerging labor shortage, the promotion of marginal employment is a mistake.
It is also a consequence of the mini-job privilege that almost every second woman in Germany works part-time. On average, women in Germany work 30.5 hours a week, four hours less than women in Sweden or France, for example.
Remove barriers to employment for second earners
The need of the hour should therefore be to remove existing barriers to employment for second earners – through better childcare options, all-day schools, a reform of the taxation of spouses and the limitation of mini-jobs to students. After all, according to an estimate by the Institute for Employment Research, mini-jobs, especially in small companies, are displacing up to 500,000 jobs subject to social insurance.
The decisive factor for the macroeconomic capital supply is the after-tax return, in which Germany has fallen behind in an international comparison. With a tax burden of 30 percent at company level, Germany is now a high-tax country for corporations.
Not least because of this, high subsidies are often necessary to make Germany attractive to major international investors. In addition to the high nominal burden of trade tax, corporation tax and solidarity surcharge, there are outdated depreciation rules, which in many cases do not do justice to the economic useful life of modern, often data and information technology (IT) -based machines. Software and IT become obsolete much faster than steel, plastic and concrete.
The idea of the traffic light coalition to introduce super depreciation for investments in climate protection and digitization therefore points in the right direction. However, problems of definition and delimitation are inevitable, so that a further complication of tax law is mapped out. In addition, limiting funding to a certain catalog or certain industries can slow down macroeconomic innovation, as resources are misdirected.
Broad investment support by shortening the depreciation period to 40 percent of the previous period would initially cost the tax authorities an impressive 17 billion euros. But after a transition period, investments, employment and wages rose significantly, as new Ifo calculations show. In the long term, therefore, additional tax income of 8.5 billion euros per year can be expected. In addition, economic output would be three percent higher than without such a reform.
Ultimately, the state would have more money at its disposal – money that is urgently needed to cushion the burden of the energy transition and the aging of the population.
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