Should top earners be asked to pay more – in order to distribute the burden of the energy crisis more fairly? That’s what the core of a proposal by the “economic wise men” is about, which has caused a lot of fuss.
In its annual report, the Advisory Council advocates a temporary energy solidarity surcharge or an increase in the top tax rate, also in order to protect public finances. It is about overcoming the energy crisis in solidarity, said the chairwoman of the Advisory Council, Monika Schnitzer, on Wednesday in Berlin. Finance Minister Christian Lindner (FDP) ruled out tax increases.
At the same time, economists expect that Germany will slide into a recession in the coming year due to the energy crisis. But you are a little more optimistic than the federal government. Inflation is forecast to remain high.
Relief packages not targeted enough
The Council of Economic Experts’ main criticism of the billions in political relief packages so far is that they are not targeted enough. High-income households would also have benefited from measures such as the tank discount and energy flat rates – although they could actually afford the higher energy prices.
But it is about relieving the burden on lower and medium-sized households in particular, who have no money left at the end of the month and have little or nothing on the high edge, said Schnitzer. That’s why “too much money is put into the system”. The state would have to take on more debt and inflation would continue to be fueled.
Schnitzer spoke of an overall package of relief and burdens that really shows solidarity and is therefore accurate. Germany is poorer due to the energy crisis triggered by the Russian war of aggression in Ukraine. “Someone has to pay for this.” These should not be subsequent generations. Higher burdens for higher earners should last until relief measures take effect. This is now foreseeable until the beginning of 2024.
Higher limits at top tax rate
The economists did not say exactly what an energy solo or a higher top tax rate could look like. The top tax rate of 42 percent currently applies to taxable income of 58,597 euros. Lindner plans to raise this to 62,827 euros in 2023, and for 2024 it is to be raised from an annual income of 66,779 euros.
Among other measures, this should serve to compensate for the so-called cold progression – an inflation-related secret tax increase. The federal government deliberately does not want to touch the limit for the even higher wealth tax rate of 45 percent because it does not believe that additional relief is necessary in this income bracket.
The economists generally consider this measure to be correct – but the dismantling of the cold progression should be postponed, said the economist Achim Truger. It is about a targeted relief for lower and middle income groups, the public budgets should not be overstretched.
A fairer tax system
The head of the Verdi union, Frank Werneke, called for the burden of the crisis to be distributed in a socially just manner. “That’s why a redistributive tax policy is overdue.” DGB board member Stefan Körzell said that a fairer tax system is needed not only temporarily, but permanently. The SPD chair Saskia Esken told the “Stuttgarter Zeitung” and the “Stuttgarter Nachrichten” that the “economic experts” took up the SPD’s demands for higher earners and people with very high fortunes to be more involved in overcoming the crises.
On the other hand, the general manager of the German Chamber of Industry and Commerce, Martin Wansleben, said that a temporary increase in the top tax rate would be a “blow in the office” for the millions of medium-sized companies. Many companies are struggling every day to stay fit for the future.
FDP leader Lindner said Germany was experiencing an economic slowdown and sharply increased prices. “What we have to do now is to avert damage to our economic substance, to keep jobs secure and to enable future investments,” said Lindner. “And that’s why additional tax burdens would be extremely dangerous in a phase of economic uncertainty.” The federal government does not want to undertake such an experiment.
Another exemption from the debt brake
The German Council of Economic Experts also takes a different position than the federal government on the debt brake. The report states that the consequences of the war in Ukraine could justify the renewed exemption from the debt brake in 2023. Lindner in particular wants to comply with the debt brake that has been suspended in recent years due to the pandemic. This allows only a small net borrowing.
In view of the consequences of the energy crisis, after slight growth this year, economists expect gross domestic product to shrink by 0.2 percent in 2023. The federal government expects a minus of 0.4 percent. Since the middle of the year, the sharp rise in energy and food prices has led to an increasing loss of purchasing power and dampened private consumption, according to the German Council of Economic Experts. At the same time, the energy crisis is having a negative impact on production, especially in the energy-intensive branches of industry. The global slowdown is weakening export demand.
