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Tax hikes on high incomes are crippling the German government

It should come as no surprise that Germany, a country heavily dependent on Russian natural gas, is the European economy most affected by the Western withdrawal from Vladimir Putin’s country as a result of the invasion of Ukraine. Not surprisingly, 55% of the natural gas imported by Germany in 2021 came from Russia.

The result of this economic disconnect from Russia is that Germany fears there will be energy shortages this winter, and Chancellor Olaf Scholz’s government is working tirelessly to find alternatives to Russian hydrocarbons and develop expensive – and dubious – programs. Help to save the country’s economy. Germany is the largest economy in Europe and the fourth largest in the world.

After the Russian invasion of Ukraine, much has changed under Chancellor Olaf Scholz. Here, in fact, we are talking about the country going through a “time of change”, which is going through the aforementioned economic disconnection from Russia, but also due to significant investments in the field of defense and changes in foreign policy. At this point, the bridges built over decades between Berlin and Moscow are considered lost.

This “time of change” has come at a time when not only the names of the heads of the Federal Chancellery have changed, since not even a year has passed since Angela Merkel stopped leading the German executive. Changes have also been registered in recent months in another important body to understand policy – specifically economic – which is developed in Berlin. Thus, in the last two years, the Advisory Board of Government Economists has been renewed, consisting of five highly reputable German economists.

Monica Schnitzer, its president, and Veronica Grimm have barely been there for two years. New faces in this group of economists with barely twelve months of work are Ulrike Malmendieu and Martin Werding. Achim Trüger, who became a member of this advisory body of the German executive in 2019, completes the aforementioned board.

Judging by the latest work signed by these experts, the annual report for 2022 and 2023, it can be said that the economists who advise the German government are moving away from the ordoliberal doctrine that made them speak so much during the crisis. euro. Ordoliberalism is understood as the German variant of economic liberalism that justifies the executive as an actor dedicated to creating the conditions for the existence of the free market. Ordoliberalism is not characterized by special attention to the development of the welfare state. During Merkel’s years in power, this was the most fashionable economic doctrine.

Recent staffing changes the Economist Advisory Council has undergone, however, appear to have changed direction. In fact, given the enormous effort the country is making to support companies and households that have seen prices rise since the start of the war, up to 8% by 2022, German executive advisers are now defending the need to create a new one. Taxes for the richest.

More taxes to fund aid

Specifically, as part of the annual report for 2022 and 2023, the German government’s advisory board of economists proposes a temporary increase in the so-called “maximum tax rate”, which currently stands at 42% from €58,597 per year. That’s what about 4 million Germans pay in income tax. However, this level is not a percentage of the tax paid by what Germany considers to be wealthy. These are those who earn more than 277,836 euros per year. They have a tax rate of 45%.

Along with increasing the “maximum tax rate”, German experts suggested to the executive to create a tax for “energy solidarity”. Economists who advise the government in this way want to be able to finance the expensive measures that Scholz and company are using to deal with the energy and economic crisis caused by Russia’s illegal invasion of Ukraine.

These palliative economic measures, among other things, have already prompted the creation of a special budget equipped with 200,000 million euros. With this money, the Teuton executive wants, for example, to pay gas bills for homes and businesses next December. With this money, they want to help finance next year’s energy bill, which has been made more expensive by the Russian gas tap closure.

In light of the measures proposed by government advisers, a conservative newspaper Frankfurter Allgemeine Zeitung This question was recently asked in its economic pages: “Are you a victim? Zeitgeist One of the last bastions of political thought?”, referring to the Council of Economists.

Council members point out that important measures taken so far in Germany during the crisis – such as financing the price of gasoline to around 2 euros per liter or tax cuts – have equally affected German society. The most advantaged families and the least wealthy. Faced with this, the council’s “wise men” consider it appropriate to “socially balance aid packages,” says Veronika Grimm, a member of the Economist Advisory Council and professor of economic theory at the University of Erlangen-Nuremberg. “We’ve impoverished ourselves as an economy, so those who can afford it have to share some of the costs,” Grimm said in an interview. Frankfurter Allgemeine Zeitung Posted last week.

Minister of Finance against the “experiment” of the “wise”.

Grimm wants these ideas to be discussed by the country’s top economic experts, at least in Germany. However, the measures are not to the taste of the country’s tax official, Liberal Party (FDP) leader Christian Lindner.

The proposals of the Advisory Council of Economists are not convenient for him. “This is not a time when we need more vulnerability,” Lindner said, referring to the experts’ suggestions. Moreover, in listening to the economists’ ideas, Lindner is quoted as calling what Grimm and company proposed an “experiment.” “An experiment like this is something the government does not want to do,” said Lindner, who, along with environmentalist Robert Habeck, the economy minister, also holds the title of vice chancellor in the German government.

It is crucial for the FDP to pass this legislature without raising taxes. In fact, during the tripartite coalition agreement last December between the Social Democratic Party of Germany (SPD), Scholz’s formation, the Greens and the FDP, Lindner’s liberals got the idea that they would be the dam that stopped. Intentions to raise taxes that the other two partners in the executive branch could express at the time.

So far, Lindner and his FDP have distanced themselves. However, what the advisory council of economists noted is perceived as “combustible material” in Scholz’s coalition, according to the German capital’s General newspaper. Der Tagesspiegel. Lindner’s FDP has been in free fall since he embarked on an adventure into the executive with the Social Democrats and environmentalists. It even seems that his political life will prevent tax increases.

Be that as it may, participation in the executive power does not suit the FDP. Thus, it appears that Lindner’s formation did not reach the 5% needed to achieve parliamentary representation in the last election last month in Lower Saxony (West). Previously, this year too, in crowded elections country In the regions of North Rhine-Westphalia (west) and Schleswig-Holstein (north), the FDP conceded a significant electoral defeat, only slightly exceeding 5%. This barrier was not overcome even in March, in the elections in Sare (south-west).

At the federal level, there are already polls putting the FDP at 5% of the vote, well below the 11.5% achieved last year in the first general election of the post-Merkel era. FDP will not enter below this 5% Bundestag in the next general elections, which are scheduled for 2025. It remains to be seen how well the Council of Economists’ rejection of the ideas of the “wise men,” the former defenders of German orthodoxy with which the FDP is so identified, will sit. with Lindner and the rest of the German liberals.

Source: El Diario


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