Why should the federal government prepare a new aid package for 2023 this year?

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Prof. Sebastian Dullien is the head of the Institute of Macroeconomics and Business Cycle Research in Düsseldorf (IMK). © N. Bruckmann / M. Litzka / dpa

Many Germans in 2023 will have less money than in 2022 as the current bailouts will continue to help this year. The federal government should therefore quickly launch a new aid package for 2023, writes the director of the Institute of Macroeconomics and Business Cycle Research (IMK), which is close to trade unions, Prof. Sebastian Dullien.

Düsseldorf – Everyone is talking about a tank discount and a ticket for nine euros. But these two measures are just the beginning: in the coming months, the federal government will spend billions more to ease the burden on the citizens of the state. Among other things, a bonus for children will be paid in July, and two months later a flat rate for all employees. In total, the federal government spends around 30 billion euros to support the country’s people in the face of high energy prices.

Poll: Every second person is worried about high inflation

In principle, the deviations are perfectly correct. In a recent employee survey conducted by the Hans Böckler Foundation, more than half of employees in Germany said they were very worried about high inflation. Over 50 percent of people feel under tremendous financial pressure because of high food prices, and almost one in two because of expensive household energy.

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Climate change, supply bottlenecks, coronation pandemic: rarely has interest in the economy been as strong as it is today. This applies to the current news, but also to some very fundamental questions: How do billions of euros in Corona * aid and the debt brake go hand in hand? What can we do about the climate crisis without jeopardizing our competitiveness? How do we secure our retirement? How do we generate tomorrow’s prosperity?

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Especially for people who are barely making ends meet anyway, a 40 percent increase in household energy prices or 10 percent at a supermarket checkout creates real social problems. Especially because of expensive energy in households, this can even lead to payment arrears and a wave of private bankruptcies.

Federal government packages have gaps – for example because retirees or students are left empty-handed when it comes to the energy flat rate. Payments may have come earlier as well – low-income people especially, often have little or no savings to temporarily absorb higher prices.

Nevertheless: many families are clearly relieved and this should not be underestimated. The Institute of Macroeconomics and Business Cycle Research has calculated that for a typical family of four with two children and two working parents, and a net income of € 2,500 per month, savings represent around 90 percent of the extra energy costs in 2022.

The loss of purchasing power causes social hardship and stifles consumer demand and growth

However, a serious problem can be predicted in 2023. Even if inflation – as many experts now forecast – weaken next year, prices will not fall as quickly. Energy and food will remain expensive in the near future. At the same time, wages will not quickly compensate for the loss of purchasing power from this year. In other words, many people in the country will have fewer real resources available next year than in 2021 and also than in 2022 as the current aid packages are helping this year. On the one hand, this causes social difficulties, and on the other hand, it weakens consumer demand and thus growth.

The federal government should launch a new bailout – and also consider retirees

The federal government should therefore quickly launch a new aid package for 2023, preferably again in the form of a flat-rate energy price, but this time also for retirees and students. And if this lump sum were to be paid in December 2022, farms without reserves would have no problem with going through the months when the money might not be enough for the most important things.

And paying early would have another advantage: the federal government could book expenses in 2022. This would allow the subsidies to be financed through more debt without compromising Finance Minister Christian Lindner’s goal of adjusting to the debt brake again in the coming year.

About the author: Prof. Dr. Sebastian Dullien is the scientific director of the Institute of Macroeconomics and Business Cycle Research in Düsseldorf of the Hans Böckler Foundation and professor of economics at the University of Applied Sciences Berlin.

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