The energy transformation will not succeed without economic growth

Conflicts in this ministry are programmed this way. After all, the home management guarded the social market economy as “the foundation of our free, open and solidary society.”

Because the central idea of ​​this economic order is “to protect the freedom of the economy and functioning competition, and at the same time to promote prosperity and social security in our country, for present and future generations,” says the portal. Despite the participation of the FDP, it is impossible to resist the impression that the new government will probably attach less importance to economic freedom.

In fact, intellectual honesty would require an indication that climate protection and economic growth do not go hand in hand. Because if resource-saving production were economically viable, companies would have implemented it long ago. And if strict climate protection regulations were to benefit the national economy in the long run, such regulations in all countries would have been introduced long ago.

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This is not an argument against climate protection. After all, economic policy is not aimed at maximizing the profits of domestic companies. If firms do not take the relevant factors into account in their own calculations, state intervention is required. Every student of economics in the first semesters learns that the general economic optimum is achieved when negative externalities are internalized, ie those who cause damage compensate the aggrieved.

Climate change is not a local problem, but a global one

However, unlike noise, waste and sewage, climate change is not a local problem, but a global one. If, for example, the USA, China or Qatar, the leader in this respect, emit large amounts of CO2 per capita, these countries reap great benefits from it, and the damage spreads all over the world.

Author

Prof. Bert Rürup is president of the Handelsblatt Research Institute (HRI) and chief economist of Handelsblatt. For many years he was a member and chairman of the German Council of Economic Experts and adviser to several federal and foreign governments. More information on the work of Professor Rürup and his team can be found at research.handelsblatt.com.

A well-intentioned world dictator who could correct and balance this can be found in textbooks at best. The federal government is therefore faced with a conflict of goals to promote climate protection in the country and at the same time not to jeopardize the competitiveness of its own economy.

Worse still, growth prospects will worsen very quickly due to demographic changes. At the end of this term, the German economy is likely to lose a third of its current potential growth of 1.4 percent, then rise by less than one percent. As this trend continues, an increase in overall economic output will no longer be a matter of course from the 1930s onwards.

Over the past seventy years, economic growth has not only been a source of increased income and prosperity in Germany. Without this increase, a major expansion of the welfare state could not be financed.

With the impending aging of the population, it has long been predicted that the social security system will face massive cost increases lasting almost 20 years, with a shrinking funding base that will further obscure growth prospects. The traffic light coalition seems to ignore this.

Work is becoming less and less

The determinants of growth of any national economy are the supply of capital and labor, and progress in productivity. As predicted, workers will become scarcer; from 2024, the labor supply is likely to decline as more workers retire, and young people move or emigrate from abroad.

The possibilities for compensation in the form of more immigration or greater labor force seem to have been largely exhausted. The labor force participation rate is unlikely to increase as many women already work at least part-time and the number of employed pensioners has increased markedly in recent years. At the same time, immigration has fallen.
There is no one-size-fits-all solution to the demographic-related labor shortage.

Rather, it is important to adjust the various parameters in such a way that more people increase their labor supply. Mini jobs are now very attractive to many second earners as they are tax exempt from the employee’s point of view.

Therefore, in many cases, it is not worth getting paid more than the threshold. Each salary increase therefore leads to fewer working hours in this segment. The planned increase in the threshold to EUR 520 by the new government would in itself lead to a slight increase in labor supply, but this will be nullified by an increase in the minimum wage.

In addition, an obstacle to engaging in activities subject to social security contributions will be raised. Promoting marginal employment is a mistake, especially in times of emerging labor shortages.

It is also a consequence of the mini-job privilege that in Germany almost every second woman works part-time. Women in Germany work an average of 30.5 hours a week, four hours less than women in Sweden or France.

Reducing employment barriers for second earners

It should therefore be on the agenda to remove existing obstacles to second earner employment – through better childcare options, full-day schools, reforming spouses’ taxation and limiting mini-work to students. After all, according to the estimates of the Labor Market and Occupation Research Institute, mini-jobs displace even 500,000. jobs subject to social security contributions, especially in small businesses.

The decisive variable for the supply of macroeconomic capital is the after-tax income in which Germany lags internationally. With a 30 percent corporate tax rate, Germany is now a high corporate tax country.

Not only for this reason, high subsidies are often necessary to make Germany an attractive location for large international investors. In addition to the high nominal burden on trade tax, corporation tax and the solidarity surcharge, there are also outdated depreciation rules which in many cases do not reflect the economic useful life of modern, often data and information technology (IT) – machine based technologies. Software and IT are becoming obsolete much faster than steel, plastic and concrete.

The idea of ​​a traffic light coalition to introduce super write-offs on investments in climate protection and digitization, therefore, points in the right direction. However, problems with definition and delimitation are inevitable, so further complication of tax law is inevitable. In addition, limiting funding to a specific catalog or sectors can slow down macroeconomic innovation as resources are misdirected.

An extensive investment promotion by reducing the payback period to 40 percent of the previous period would initially cost the tax authorities a significant 17 billion euros. However, after the transition period, investment, employment and wages increased significantly, new Ifo calculations show. In the longer term, therefore, additional tax revenues of EUR 8.5 billion per year can be expected. Moreover, economic output would be three percent higher than without such a reform.

Ultimately, the state would have more money at its disposal – money that is urgently needed to ease the burdens of the energy transition and aging population.

More: Consequences of the coalition agreement for investors and consumers

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