Germany is becoming a worry for the global economy - the government should implement structural reforms

Germany is becoming a worry for the global economy - the government should implement structural reforms

According to a report by amp2.wiwo.de, Germany has become a worry for the global economy and there is a possibility that this will remain the case in the long term. According to the International Monetary Fund (IMF), the German economy recorded a decline in economic output of 0.5 percent this year. Even Federal Minister of Economics Robert Habeck had to correct his growth forecast from 0.4 percent to a minus of 0.4 percent. Experts assume that Germany's growth potential will only be around 0.6 percent per year in the future.

This development is largely self-inflicted, as Germany has not implemented sufficient structural reforms for years. In contrast, countries such as the United States, France, Sweden and even Greece have cut corporate taxes, cut bureaucracy and deregulated the labor market. In Germany, on the other hand, there are still high corporate tax burdens and a leaky pension system.

The tax burden for corporations in Germany is internationally high at an average of 29.94 percent. Only Japan and Malta have higher corporate taxes. At the same time, non-wage labor costs have risen by around 35 percent over the last ten years and now account for a quarter of labor costs.

In order to survive in the location competition, Clemens Fuest, President of the Munich Ifo Institute, is calling for the tax rate on corporate profits to be reduced to 25 percent. He also proposes replacing the trade tax with a surcharge on the corporation tax and for municipalities to contribute to local payroll tax revenue.

The pension system also needs extensive reforms. A quarter of the federal budget is already going towards pensions and in 20 years it could be half. Experts such as Christoph Schmidt, President of the RWI research institute, believe that longer working lives are inevitable and suggest linking the retirement age to life expectancy. Monika Schnitzer, chairwoman of the German Economists, goes even further and advocates linking pensions less closely to wage developments.

It remains to be seen whether such uncomfortable suggestions will be heard by the current government coalition, consisting of the SPD, Greens and FDP. Despite the location doubts, Economics Minister Habeck praises the German economy and claims that it is just “a little out of shape”.

Source: According to a report from amp2.wiwo.de