Early federal elections will be held in Germany on 23 February. The key election issue: the economic crisis. In 2024, Germany's gross domestic product (GDP) shrank for the second year in a row - the last time this happened was in 2002/03. Experts from the Faculty of Business Administration and Economics at Paderborn University categorise the current situation and points of contention from an academic perspective. Their expertise is based on a wide range of research activities: In the Collaborative Research Centre (SFB) "Accounting for Transparency" led by Paderborn University - the first SFB in Germany with a focus on business administration - researchers are investigating, for example, how tax regulation influences the transparency of companies. The research is intended to contribute to the development of sensible rules for corporate transparency and a more transparent tax system. The faculty also recently achieved a top position in the DFG's Germany-wide funding atlas. With thePaderborn Research Centre for Sustainable Economy(PARSEC), it has structurally expanded its teaching and research activities on sustainability. The team understands "sustainable economy" as long-term orientated economic development with special consideration of social, environmental and cultural aspects.
Mr Müller, the financing of health insurance funds is to be subsidised with the help of capital income subject to social insurance contributions - at least that is one proposal. Apart from private savings, which are generally already taxed: What would this mean for companies and the economy?
Prof Dr Jens Müller: "Companies are hardly affected by the reform proposal, only their shareholders. If you take into account allowances for low capital income and contribution assessment limits, there would probably only be a small amount of revenue to finance the health insurance funds. It would be easier to increase taxes if you want to place a greater burden on capital income for financing social insurance. In my view, however, it is crucial to tackle the fundamental problems of social insurance and at the same time improve the efficiency of the healthcare system."
The high energy prices for companies are also one of the major points of contention. How can a constant supply of electricity be guaranteed without having to pay record prices for wind or solar power, for example? To what extent can EU emissions trading be an effective instrument for companies?
Prof Dr Martin Kesternich: "First of all, it's worth taking a look at the latest developments. Electricity prices have recently fallen significantly for small to medium-sized industrial companies, for example. According to the BDEW electricity price analysis, the average electricity price for these companies in 2024 was around 17 ct/kWh, almost 8 ct/kWh below the prices in 2023. Nevertheless, electricity prices remain at a high level. The necessary expansion of the generation and grid infrastructure as well as the integration of renewable energies into the electricity grid will require high investments. In the long term, however, these investments will contribute to lower electricity prices and accelerate electrification. On the demand side, current forecasts assume that less electricity will be purchased over the next five years than previously assumed. Even if the expected price paths for electricity in the coming years are therefore subject to a certain degree of uncertainty, it is becoming apparent that the volatility in electricity generation will lead to significant price fluctuations. From an economic perspective, it is therefore crucial to exploit flexibilisation options even more than before and to open up new business models through appropriate economic incentives.
Further incentives for investments in low-emission technologies are provided by the EU Emissions Trading Scheme (EU ETS), which covers the energy generation and electricity production sectors in particular, as well as energy-intensive industry. The EU ETS currently covers just under 40 per cent of greenhouse gas emissions in Europe. The trick is that the regulated companies can decide for themselves whether they want to reduce their emissions and thus trade free emission allowances on the market. At the same time, however, the quantity of tradable allowances will continue to gradually decrease over the next few years. The price of emission allowances therefore incentivises the companies involved to reduce their greenhouse gas emissions. As the price for emissions trading allowances is formed on the market, the instrument can react quickly to economic changes, for example, in contrast to fixed emissions taxes, without changing the impact on the climate."
There is also disagreement on the citizen's income. While some want to abolish it altogether and introduce wealth audits, others are in favour of tighter conditions and improved incentive systems. Among other things, higher supplementary income limits for benefit recipients are being discussed. How radical can a reform be and at what point does too much solidarity come at the expense of the general economic situation?
Prof Dr Thomas Gries: "First of all, we have to ask: What is a citizen's income? Citizen's income is intended to ensure a decent minimum subsistence level for those who, for various reasons, are unable to cover their living costs from their own income. Citizen's income benefits can completely replace a lack of income or they can supplement existing but very low incomes. The reasons for citizen's allowance benefits vary greatly and can be recognised in part by the groups of benefit recipients. Of the approximately 5.5 million people who receive citizen's income benefits, around 1.5 million are not able to work, mainly children and young people. The most important groups of the remaining almost 4 million recipients of benefits who are able to work either received benefits as part of training, school or university, were in measures to integrate them into new jobs, received income support as single parents or carers or were unable to work. Ultimately, there were around 1.7 million unemployed people who received the standard rate of citizen's allowance as a single person (506 euros plus an allowance for accommodation and heating of 544 euros for a two-person household). No one really knows why these 1.7 million people are basically considered fit for work, but still remain on the income replacement of the citizen's allowance, which only covers their livelihood. Apart from standard characteristics such as age, gender, educational qualifications and general incapacity for work, no detailed information, e.g. on health status, is recorded in the labour market statistics. We also cannot clearly predict how many of these unemployed people would actually find work if benefits were reduced or incentives increased, but if we look at the qualification characteristics of this group, around 66 per cent of those entitled to citizen's allowance who are looking for work have not completed vocational training. This makes it clear that this group also has little to do with the many job offers for professionals and will hardly contribute to solving the shortage of skilled labour. The discussion about cutting the citizen's income, which is actually already set at the subsistence level, will not solve any of the central economic problems in Germany.
As far as solidarity is concerned, we have seen a noticeable increase in income inequality over the last three decades. Polarisation has not only taken place politically, but also economically. According to the OECD, in many Western democracies, the ratio of disposable income of the top ten per cent of income earners to the bottom ten per cent of income earners has risen significantly over the last 25 to 30 years. In concrete terms, this means that richer households no longer have three times as much income as poor households, but four to six times as much, depending on the country. The current debate on the Citizen's Income is probably best understood from the ideological perspective of the various parties. But ideology is not a good counsellor."
Taxes on overtime and any solidarity surcharges are to be abolished and company tax reduced. How big would the actual tax relief be with such a measure and how attractive are aspects of corporate taxation for voters?
Prof Dr Jens Müller: "In 2023, employees will have worked an average of 13.2 hours of paid overtime. The importance of tax relief therefore depends heavily on the amount of personal paid overtime and the total amount of income. However, the extent to which this measure will lead to a permanent increase in labour supply is questionable, as overtime at best only alleviates structural weaknesses and skills shortages in the short term. Most voters are already no longer paying the solidarity surcharge following the reform by the coalition government due to the tax-free allowances that have been introduced. Structurally, it would be a good idea to abolish the solidarity surcharge altogether anyway. The taxation of companies may seem rather abstract to many voters, as the immediate benefit is not clear to them. Nevertheless, a reduction in corporate taxation could meet with approval if it has a positive impact on job creation, economic competitiveness and the attractiveness of the location. At the same time, there is a risk that critical voters will perceive it as one-sided support for large companies."
Many parties consider investment in future technologies to be an important instrument for bringing the German economy back to the forefront in a global comparison. In which sectors is the innovative strength of the German economy particularly promising?
Prof Dr Kirsten Thommes: "It is difficult to name specific industries or specific innovations and I doubt that individuals - scientists or politicians - are in a position to predict the future. Should we invest in medical technology or rather in automotive - the assessment is complex and probably strongly characterised by personal preferences. I therefore believe it is fundamentally better to improve the overall entrepreneurial conditions instead of sponsoring individual technologies or industries. In my opinion, politicians should focus on government tasks and train enough professionals, provide infrastructure or improve the framework conditions for investments.
In my view, we need to set a political course that enables future technologies to be strengthened in Germany and Europe. On the one hand, this naturally concerns the education sector, where we are no longer in a good position compared to other European countries. On the other hand, it also affects variable costs such as personnel costs for employers, in particular the very high non-wage labour costs. Using the example of AI as a future technology, we can see that although more investment is being called for in many areas by the public sector and companies, the investment conditions are becoming so unattractive due to high costs and heavy regulation that it is becoming very difficult to compete with Asia or North America. In addition, there is both a social and a regulatory environment that does not promote and value entrepreneurship and innovative start-ups enough."
German bureaucracy is criticised in many fields and there are calls for it to be reduced - for example, to relieve companies of additional costs. To what extent would bureaucratic requirements have to be reduced in order to have a positive impact on GDP?
Prof Dr Caren Sureth-Sloane: "Our research shows that the increasing complexity of the tax system, for example, harms companies - especially small and medium-sized ones - and leads to higher costs, e.g. higher personnel costs in the field of taxation. It is also clear that companies invest less as a result and are less competitive. For example, it has been shown that up to 8 per cent more is invested in innovation in countries with less complex tax administration processes and that these countries also attract significantly more foreign direct investment."
This text was translated automatically.
