Concerned by the country’s anaemic consumption, Berlin politicians have started a frantic search for ways to inject cash into the wallets of ordinary Germans.
The motives are partly electoral – German rulers are eager to please ahead of next year’s general election – but economists agree that consumer spending could do with some help as exports weaken.
As part of its efforts to restore a degree of balance, the government is seeking to transfer some of the income from capital to workers. A bill approved by the cabinet last month will make it more attractive for non-listed companies to share some of their profits with employees.
Under the plan, the government would encourage the creation of several sector-specific funds in which companies could pool capital for their employees to invest in.
The pool structure of the funds would minimise the risk of employees losing both jobs and savings should their companies go bankrupt. The government is planning to pay €230m ($334m) a year in tax incentives to encourage employees to invest.
“I am convinced that increasing people’s participation in the success of their employers will improve the general climate in the country,” said Olaf Scholz, labour minister.
The plan is likely to be passed by parliament before the year is out and will apply retroactively to 2008. Other measures to pad ordinary Germans’ incomes have already been enacted, including increases in social benefits, the creation of a minimum wage in the postal sector, and a cut in unemployment insurance contributions paid by employees and their employers. But most of the other ideas floating around Berlin are unlikely to become law before the general election in September next year. Instead, they will find their way on to the platforms of the CDU and SDP as the two political parties run against each other again.
The SPD has called for higher social benefits in some areas, but, as befits the party of finance minister Peer Steinbrück, it is more reluctant than the CDU to use the public purse to prop up consumer sentiment. Instead, it wants business to foot the bill and will be campaigning hard for the introduction of a universal minimum wage – as opposed to the sector-specific minimum wages that the government has already introduced in some areas – on the French or British model.
SPD officials point to statistics published last month by an economic institute affiliated with the trade union movement. They showed real wages among the quarter of workers with the lowest pay had dropped by 14 per cent since 1995 while top earners saw their income rise by 3.5 per cent.
The conservative camp is suspicious of a minimum wage that it thinks would defeat its purpose by destroying a large number of jobs. They also point to separate figures showing equally striking inequality between taxpayers. According to the Federal Statistical Office, 25 per cent of employees now account for 80 per cent of total income tax, while 10m low earners pay no taxes at all.
The Christian Social Union, Bavarian sister party to chancellor Angela Merkel’s CDU, has put forward proposals for €50bn in income tax cuts over four years. Many MPs in the chancellor’s party – though not the chancellor herself – have expressed sympathy for the project.
In the meantime, the two parties have agreed in principle on another cut in the payroll tax that finances the unemployment insurance scheme from 3.3 per cent of gross wages to 3 per cent. Though this is not yet the government’s line, members of both parties are confident that Berlin will also restore a commuter subsidy it had scrapped earlier.
But since the government has failed to agree on a meaningful reform of Germany’s broken state health insurance scheme, spending, and therefore contributions, in this area are likely to shoot up next year, more than offsetting the cut in jobless insurance levies.
The debate as to how best to refill consumers’ pockets has moved up the political agenda. But whether the talk turns into action will most likely be down to the next government.
