Wednesday, November 30

The increase in taxes on high incomes cracks the German Government

No one should be surprised that Germany, a country highly dependent on Russian natural gas, is the European economy hardest hit by the Western disengagement from Vladimir Putin’s country as a result of the invasion of Ukraine. Not surprisingly, in 2021, 55% of the natural gas imported by Germany came from Russia.

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The consequence of this economic disconnection from Russia is that in Germany there is fear that this winter there will be an energy shortage and that the government of Chancellor Olaf Scholz is working tirelessly to find alternatives to Russian hydrocarbons and to develop expensive –and questionable– programs of help to save the country’s economy. Germany is the largest economy in Europe and the fourth in the world.

Since the Russian invasion of the Ukraine, many things have changed under Chancellor Olaf Scholz. Here there is talk, in fact, that the country is experiencing a “time of change”, something that goes through the aforementioned economic disconnection from Russia, but also due to a considerable investment in defense and changes in foreign policy. At this point, the bridges that had been built for decades between Berlin and Moscow are considered missing.

That “time for change” has come at a time when not only the identity of those who run the Federal Chancellery has changed, since it has not been even a year since Angela Merkel stopped directing the German Executive. Changes have also been registered in recent months in another important body to understand the policies – specifically economic – that are developed in Berlin. Thus, in the last two years, the Advisory Council of Government Economists, made up of five highly reputable German economists, has been renewed.

Monika Schnitzer, its president, and Veronika Grimm have barely been there for two years. New faces with barely twelve months of work in this group of economists are Ulrike Malmendier and Martin Werding. The aforementioned council is completed by Achim Truger, who became a member of that advisory body of the German Executive in 2019.

Judging by the last of the works signed by these experts, the annual report for 2022 and 2023, it could be said that the economists who advise the German Government are moving away from the ordoliberal doctrine that made them talk so much in times of the crisis. of the euro. Ordoliberalism is understood as that German variant of economic liberalism that vindicates the Executive as an actor dedicated to establishing the conditions for the free market to exist. Ordoliberalism is not characterized by paying special attention to the development of the welfare state. In Merkel’s years in power, that was the most fashionable economic doctrine.

The latest personnel changes that the Economists Advisory Council has undergone, however, seem to have imposed a change of direction. In fact, in view of the enormous efforts that the country has to make to support companies and households that have seen prices rise since the war began, up to 8% by 2022, advisers to the German Executive now defend the need for to create new taxes for the wealthiest.

More taxes to finance aid

Specifically, within the framework of the annual report for 2022 and 2023, the Advisory Council of Economists of the German Government proposes a temporary increase in the so-called “maximum tax rate”, which is currently 42% from 58,597 euros per year. That percentage is what some 4 million Germans pay in income tax. Still, that level is not the percentage of tax paid by those Germany considers to be truly rich. These are those who earn more than 277,836 euros per year. They have a tax level of 45%.

Together with the increase in the “maximum tax rate”, the German experts have proposed to the Executive the creation of a charge for “energy solidarity”. The economists who advise the Government thus want to have the means to finance the expensive measures with which Scholz and company are dealing with the energy and economic crisis unleashed by Russia’s illegal invasion of Ukraine.

These palliative economic measures have already forced, among other things, the creation of a special budget endowed with 200,000 million euros. With this money, the Teutonic Executive wants, for example, to pay the gas bill to homes and companies next December. With that money they also want to help finance the energy bill next year, made more expensive by the closing of the Russian gas tap.

In view of the measures proposed by government advisers, the conservative daily Frankfurter Allgemeine Zeitung this question was recently asked in its economic pages: “Are you a victim of Zeitgeist one of the last bastions of political thought?”, alluding to the Advisory Council of Economists.

The members of the council point out that notable measures taken in Germany so far in the face of the crisis – such as financing the price of gasoline so that it is around 2 euros per liter or tax cuts – have affected everyone equally in German society, to the most favored households and to the least wealthy. Faced with this, the ‘wise men’ of the council see fit to “balance the aid packages socially”, according to Veronika Grimm, member of the Advisory Council of Economists and professor of Economic Theory at the Erlangen-Nuremberg University. “We have become impoverished as an economy, so those who can afford it should share some of the costs,” she said Grimm in an interview with the Frankfurter Allgemeine Zeitung posted last week.

The Minister of Finance, against the “experiment” of the ‘wise men’

Grimm wants these ideas from the country’s top economic experts, at least, to be debated in Germany. However, the measures are not to the taste of the country’s tax official, the leader of the Liberal Party (FDP), Christian Lindner.

For him, the proposals of the Advisory Council of Economists are not convenient. “This is not a time when we need more insecurity,” Lindner said on account of the experts’ proposals. What’s more, listening to the ideas of economists, Lindner has been quoted as calling what Grimm and company proposed an “experiment.” “An experiment like this is something that the government does not want to carry out,” said Lindner, who along with environmentalist Robert Habeck, Economy Minister, also holds the title of vice-chancellor in the German government.

For the FDP it is crucial not to raise taxes in this legislature. In fact, in December last year, at the three-way coalition agreement between the Social Democratic Party of Germany (SPD), Scholz’s formation, the Greens and the FDP, Lindner’s liberals came up with the idea that they would be the dam that stopped the intentions of raising taxes that the other two partners in the Executive could express at the time.

So far, Lindner and his FDP had gotten away with it. However, what was pointed out by the Advisory Council of Economists is perceived in the Scholz coalition as “flammable material”, according to the terms of the general newspaper of the German capital Der Tagesspiegel. Lindner’s FDP has been in free fall since he began his adventure in the Executive with social democrats and environmentalists. It even seems that his political life is going to avoid tax increases.

Be that as it may, participating in the Executive does not sit well with the FDP. Thus it can be seen that Lindner’s formation did not reach the 5% necessary to achieve parliamentary representation in the last elections in Lower Saxony (west), held last month. Before, also this year, in the elections of the populous country in North Rhine-Westphalia (west) and in those of Schleswig-Holstein (north), the FDP conceded significant electoral losses, only slightly exceeding 5%. That barrier could not be overcome in March either, in the elections in Sarre (southwest).

At the federal level, there are already polls that attribute 5% of the vote to the FDP, falling far short of the 11.5% achieved last year in the first general elections of the post-Merkel era. Below that 5%, the FDP would not enter the bundestag in the next general elections, scheduled for 2025. It remains to be seen whether refuting the ideas of the ‘wise men’ of the Advisory Council of Economists, former defenders of the German orthodoxy with which the FDP has been so identified, sits politically well with Lindner and to the rest of the German liberals.

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