This Wednesday (12.11.), the annual report of the German Expert Council of Economists, which has been advising the German government for decades, was published. This is Chancellor Friedrich Merz’s (CDU) first annual report after six months in office.
No prospects for economic recovery
This year’s gross domestic product (GDP) growth rate is expected to remain at 0.2%. It is expected to reach 0.9% by 2026. “After two years of recession, Germany’s economic outlook for this year is finally turning from negative to positive,” said Monika Schnitzer, head of a group of advisory economists that provided analysis to Merz in Berlin.
Compared to other European countries, Germany is lagging behind and far from a true recovery. “For the economy to return to a sustainable growth path, productivity needs to improve, especially through increased innovation and investment,” he warned.
Moreover, given the current geopolitical and structural challenges, Germany needs to develop a new perspective on growth and security policy.
“Re-adjustment of plans”
“Creating a vision for the future, not wasting opportunities” is the title of this year’s report. This refers to the Special Fund for Infrastructure and Climate Neutrality (SVIK), set up by the coalition government and financed by debt, worth 500 billion euros to invest in infrastructure projects.
The five-member board warned that the majority of the funds were being used to finance personal consumption and were not contributing to the creation of new assets.
The report says special funds should not be used to give room for maneuver in the regular budget to fund “questionable measures” such as expanding maternity pensions or extending tax breaks for drivers. “Adjustment of these plans is therefore urgently recommended if we do not want to waste the opportunities offered by fiscal policy,” the Council President warned.
These are recommendations, not obligations
Merz agrees with the report: “High tax burdens and social contributions hinder investment in Germany. The price competitiveness of our economy needs to improve.” This includes addressing Germany’s high energy costs. “I can assure you that the federal government is working intensively in Brussels this year to find a solution,” he said.
Merz reiterated other measures planned to boost the German economy. Corporate tax reduction and social security burden reform from 2028.
Additionally, contributions to health insurance, long-term care insurance, and pension funds have steadily increased over the years, making them a major issue. Germany is an aging society and fewer and fewer taxpayers have to fund a growing number of pensioners. This year, more than 120 billion euros will be allocated in subsidies for retirement, the most important item in the budget.
Germany has a lot of wealth and a lot of poverty.
The report also recommends encouraging personal savings for retirement. Germany’s economic disparity is large compared to other European countries. Governments must encourage the accumulation of economic resources through state-sponsored retirement savings plans.
It is estimated that between 30 and 50 percent of Germany’s economic power comes from inheritance and donations. In particular, business assets receive very favorable tax treatment. The government aims to prevent companies from going out of business because new managers are unable to pay inheritance taxes. Ironically, taxes on very large inheritances and donations tend to be relatively low.
(RMR/CP)
About The Author
