Opinion: Time for a rethink on taxes | Opinion | DW | 11.08.2016
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Opinion: Time for a rethink on taxes

The German economy has produced some decent first-half results. But it needs to be said it could have been even better if the state had given its citizens some relief from taxes, DW's Rolf Wenkel writes.

So how is the German economy doing? For the past two weeks, major German corporations have been releasing their second-quarter results - and that's reason enough to take a look at the year so far.

Overall, it's a positive picture: Sales are up in the automotive industry, and if sales figures are any indication, Volkswagen has managed to endure the Dieselgate scandal remarkably well.

Most notably, there's hardly any sector of the economy seeing a big slump - apart from the electrical utilities, which overslept Germany's transition to green energy and now have to deal with their fossil-fuel and nuclear legacy.

While power giant Eon achieved an underlying profit of 2.9 billion euros ($3.2 billion) in the first half, it took a charge of 3 billion euros for its power plant and trading subsidiary Uniper before spinning it off. Germany's third-largest utility, EnBW, reported a first-half loss of 194 million euros, and Swedish state-owned Vattenfall, the fourth-largest, reported a loss of 3 billion euros for the second quarter.

Banks in trouble

The banks are also clouding the economic picture in Germany. In the recent stress test of 51 European banks, Deutsche Bank and Commerzbank landed among the bottom 10. A study by the Center for European Economic Research (ZEW) in Mannheim concludes Germany's biggest bank would not have enough equity to compensate for the losses that would be expected in the event of another financial crisis. The shortfall would amount to 19 billion euros.

Rolf Wenkel

DW's Rolf Wenkel

A capital increase in response to such a crisis scenario would be difficult in view of the current wobbly stock price: Deutsche Bank has a current market capitalization of less than 17 billion euros. That is not enough to remain in the prestigious stock "Stoxx Europe 50" index, and since August 8, 2016, Deutsche Bank and Credit Suisse shares are no longer listed there.

Only two troubled industries in an overall economically stable environment - that's enough to gladden the heart. The functionaries of various business associations see things differently, of course, and for professional reasons they have to talk about dark clouds on the horizon.

The sluggish world economy has to serve as a justification for the supposedly grim prospects that await us - as well as China's faltering economy, the Brexit vote, the attempted coup in Turkey and the crises in Brazil and Russia. All this, they say, weakens the economic outlook for the export-oriented German economy.

Exports aren't everything

There may be something to this, but it's also not the whole story. After all, the greatest impetus for the German economy for many years was domestic demand - and above all private consumption, which is fueled primarily by stable employment. People who see their jobs as secure are more likely to make major purchases.

What's more, the number of people in employment is reaching new record highs month for month, while consumers' purchasing power is growing. Not only because energy prices are falling, but also because wage increases are once again well above the rate of inflation.

Of course, private consumption isn't enough by itself to pull the Germany economy out of any doldrums - but it certainly puts wind in its sails. And that wind could be even stronger if it were possible to persuade the German finance minister to treat citizens more fairly when it comes to tax - that is to say, to offer them relief. But by simply doing nothing, the state's coffers keep filling up, because every round of wage increases means more employees in the disproportionately taxed higher income groups.

Regressive progressive taxes

A lobby group that does not exactly arouse suspicion in this area, the Federation of German Industries, has calculated thus: "While the top tax rate in 1965 was reached at approximately twelve times the average income, it is today already reached at 1.9 times the average." This makes it abundantly clear that the income tax rate curve must be significantly flattened and the top rate should take effect at a much higher level.

The German Taxpayers' Federation says it is no coincidence that surveys show 81 percent of Germans feel their tax burden is too high. And if these 81 percent contrast their tax burden with public-sector cuts when it comes to roads and bridges, schools and teachers, judges, prosecutors and police officers, the parties in government should not be surprised if they lose more and more voters to other parties further to the left and right.

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