Dear friends and all those are interested,
On the 5th of January 2021, the Frankfurter Allgemeine Zeitung published an opinion piece on the need for investments as well as greater solidarity and tax justice in order to tackle the challenges of our time. Why is this newsworthy? Because the piece was co-authored by the president of the German Federation of Trade Unions, Reiner Hoffmann, and the co-president of the German Greens Robert Habeck. This is a remarkable start into this election year, with the German federal elections coming up in September! Normally the German trade unions are dominated by social democrats. Furthermore, the article contains policy orientation on German fiscal policy which has also effects for all other EU member states. Reiner Hoffmann and Robert Habeck demand visionary action, in a nutshell: We need new policies that link the fight against Covid-19 and its economic fallout with the socio-ecological restructuring of the country.
A decisive fight against the pandemic and additional spending to cushion the worst effects on economic and social life are absolutely necessary. If the state cuts back on public expenditure in an economic crisis, the crisis will worsen. Even beyond the current exceptional situation, we need to invest to make our economy fit for the future and to create future-proof jobs. The conditions for this are ideal. Now is the completely wrong time to call for an austerity policy that the conservatives in Germany themselves never implemented between 2012 and 2019 but only elsewhere in the Eurozone. Europe does not need more austerity, in fact, it would be fatal in the present circumstances. Instead, we need to use the money from the European recovery fund to start tackling much-needed investments in our future.
In addition to fighting the crisis and making long-term investments in the future, we must tackle the problem of injustice. This means: fighting tax fraud and taxing digital corporate profits so that the shop around the corner from where you live can compete fairly with Amazon and Co. With the help of this petition, more than 48,000 people are already calling on European governments to introduce a digital tax without delay. It is unacceptable that Amazon is making huge untaxed profits while the shops in our city centres have to close. We also need a financial transaction tax that effectively curbs short-term speculation on financial markets and ensures that the financial sector contributes its fair share to financing the common good.
Robert Habeck and Reiner Hoffmann agree: “The earners of very high incomes should pay more income tax, and large fortunes should finally be taxed again – not in the middle of the economic crisis, but as soon as the economic recovery has stabilised. In return, low- and average-income earners should be disburdened. If we manage to scale down the low-wage sector, increase the minimum wage, and manage to have many more people benefit from collective labour agreements, then social cohesion and trust in the community will grow. This is what we need to ensure that major and necessary change happens.”
Please find the full translation of the article below.
P.S. Petition: Digital Tax Now! – Shops are closing, Amazon & Co are making huge profits without paying their fair share of tax: a digital tax must come now! Together we have the chance to finally overcome the blockade on the digital tax: Please sign our petition and share it with your contacts! https://www.change.org/digitaltax-now
Corona crisis: Investing in Germany
If Germany wants to remain a good country, it must change. It must operate more ecologically in the future and distribute its prosperity more fairly. To achieve this, we need different, new policies: policies that not only react to the Corona crisis, but link the fight against it more closely to the socio-ecological restructuring of the country.
First, we must overcome the Corona crisis, which has hit us hard socially and economically. Second, the course must be set for climate neutrality so that the economy remains strong and offers decent jobs. This requires major investments – in the production of renewable energies, in transport, in the restructuring of the industry and agriculture, in research and innovation, and in Europe’s global competitiveness. Third, the Corona crisis has exacerbated social inequality in the country. If this was already a major social problem before the pandemic, it now requires an even greater response.
These major tasks will bring a debate back to Germany in the election year 2021 that we have not had for a long time: It is about the right balance between frugality and investment, between taxes and justice. As much as these issues are interwoven, specific answers are needed.
Germany’s „debt brake“ is economically and politically wrong
Combating the pandemic and its effects is undoubtedly expensive. However, society would pay a far higher price if the state did not put up the many billions. It is understandable, however, that people get dizzy when they hear how much money is involved.
In fact, the German government’s debt ratio is expected to rise from less than 60 per cent to more than 70 per cent of the gross domestic product (GDP) over just one year. Who, many ask, is going to pay for all this? In order to reassure the public, the current federal government is relying on a rapid repayment of debts and a swift return to the rigid debt limit („Schuldenbremse“) by 2022. However, both are economically and politically wrong.
Frugality in the middle of an economic crisis worsens it. If everyone saves, i.e. too little money is spent, unemployment and new economic crises arise. We should have learned our lesson from the financial and Euro crises: the austerity policies of that time cost people their jobs and livelihoods and gave impetus to populism, not a to loose fiscal policy.
In order to classify the current debt, it is not the absolute amount of loans that is meaningful, but their ratio relative to the economic strength of the country. Germany is very, very strong economically. Accordingly, it is not so much a question of exactly how high the debt ratio or debt is, but rather whether we are in a position to tackle the major tasks of this decade.
Optimal conditions for investments
In addition, interest rates have been extremely low or even negative for years, and will be for the foreseeable future, so that the state effectively pays nothing for borrowing money. German government bonds are highly sought after as collateral. Since Germany is the largest economy in the Eurozone, banks and insurance companies have to hold German bonds as collateral, and countries have to invest their Euro currency reserves in them.
Therefore, the conditions for investment are optimal. If you can take out loans at zero interest, use these loans to invest, thus ensure that the economy thrives after the crisis, that new jobs are created and taxes are collected – then the debt will shrink in return. This was the case after the financial crisis, from which Germany emerged with a debt ratio of 82 per cent. From 2012 to 2019, the debt ratio – that is, the amount of debt measured against economic growth, i.e. GDP – fell again to below 60 per cent. A large part of this was due to a higher GDP, only a small part to the decline in debt.
Even before the Corona crisis, Germany was investing too little. According to a survey by KfW (the German state-owned development bank), the investment backlog in the municipalities – unrenovated bridges and schools, ailing public swimming pools – amounts to 147 billion Euros. Major investments are also needed in the ecological restructuring of the economy. Yes, we have to save drastically, but especially CO2. Accordingly, not every investment is good, not every growth is necessary. With the Green Deal – the European investment programme – and the taxonomy developed in Europe, criteria have been developed on how to steer growth ecologically. Less of the old, more of the new: that’s the way to go.
Extend repayment periods for loans
The transformation of the economy is also linked to a struggle for Europe’s role in an altered world order. Europe is in danger of becoming technologically, industrially and thus politically dependent. If we want to be a strong player, we need a sustainable, common financial policy.
If you take this analysis seriously, you’ll come to different conclusions than the current German government. First, the repayment periods for the Corona-related loans should be significantly extended. Second, we should reform the Stability and Growth Pact at the European level, and the debt brake in Germany. Of course, the European Economic and Monetary Union requires common coordination and rules on public expenditure ceilings. But if these rules are too tight, make no economic sense, and prevent what is politically required, then they must be changed. The debt brake should be supplemented by a rule in favour of public investment.
The fact that Germany has remained politically more stable than many of its European neighbours in recent years is also due to the fact that the federal government has spent so much money. It is a myth that the current government has been particularly frugal. It has not.
Indeed, federal expenditure excluding interest rose by almost 25 per cent between 2012 and 2019. In Italy, government spending increased by slightly less than 10 per cent during the same period. The fact that Germany’s debt has nevertheless declined can be explained by interest rates having fallen as well as tax and social security revenues having grown faster than spending due to growth. If the government in Berlin suddenly were to impose austerity on Germany in the last months of its term – austerity that it itself has never carried out – that would be cynical, to say the least.
Fight tax fraud, tax corporations
When it comes to handling the COVID-19 debt, however, the political left risks getting tangled up in contradictions, too. Suggesting that the loans should be repaid through new taxes or levies – a new “Soli” or a wealth tax – it implicitly argues that borrowing is a problem. Certainly, Germany needs a fairer tax system. But not primarily to finance investments or to overcome the COVID-19 crisis, but to tackle the third major task described above: inequality in Germany. This has a rationale in and of itself.
Taxing financial transactions and digital corporate profits, fighting tax fraud – that must be at the top of our equality agenda. Otherwise, every tax and every tax increase will be an incentive for tax evasion. Therefore, the earners of very high incomes should pay more income tax, and large fortunes should finally be taxed again – not in the middle of the economic crisis, but as soon as the economic recovery has stabilised. In return, low- and average-income earners should be disburdened. If we manage to scale down the low-wage sector, increase the minimum wage, and manage to have many more people benefit from collective labour agreements, then social cohesion and trust in the community will grow. This is what we need to ensure that major and necessary change happens.
For your reference, here is the original article in the Frankfurter Allgemeine Zeitung (paywall) and on the website of the German Greens (free access): https://www.faz.net/aktuell/wirtschaft/habeck-dgb-chef-linke-droht-sich-im-widerspruch-zu-verheddern-17130455.html