New paper could fuel discussion about German “traffic lights”
Published: Friday, Nov 1st 2024, 18:00
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In the midst of the "traffic light" coalition's dispute over the right course in German economic and financial policy, a new policy paper by Finance Minister and FDP leader Christian Lindner has become public. The paper calls for immediate measures such as the permanent abolition of the solidarity surcharge on income tax, including for high earners, and an immediate stop to all new regulations.
"Germany needs a reorientation of its economic policy," it said. This should be of a fundamental nature. The paper is entitled "Economic turnaround in Germany - a concept for more growth and intergenerational justice." It is available to the German Press Agency. It was first reported in "Stern".
The undated paper calls for an "economic turnaround" with a "partly fundamental revision of key political decisions" in order to avert damage to Germany as a business location. The German economy is in a growth crisis. A reorientation of economic policy could strengthen the confidence of companies and private households.
Autumn of decisions
The FDP has long been calling for an "economic turnaround" and has proclaimed the "Autumn of Decisions". Demands such as the complete abolition of the solidarity surcharge are also well known. However, the timing of the new paper is explosive.
Just a week and a half ago, Economics Minister Robert Habeck (Greens) once again proposed a debt-financed sovereign wealth fund worth billions to promote investment by companies. The FDP rejects this with reference to the debt brake.
Chancellor Olaf Scholz (SPD) had invited people to an industry summit, but neither Habeck nor Lindner were invited. The FDP parliamentary group had organized a kind of counter-summit with associations. Like the FDP, Scholz is planning further meetings in roughly the same format. Ultimately, the Chancellor wants to achieve a "pact for industry", the result of which should be ready before Christmas, as government spokesperson Steffen Hebestreit announced.
The German government only announced a "growth initiative" in July. However, the package with many measures has not yet been implemented.
Various measures required
Specifically, Lindner's current paper talks about an immediate moratorium to stop all new regulations. New legislative projects should either be dropped altogether or, where this is not possible, designed in such a way that bureaucracy and regulation are reduced by the project and do not increase under any circumstances. In this context, plans by Labor Minister Hubertus Heil (SPD) for a law on collective bargaining and the Supply Chain Act are mentioned, for example.
It also states that the solidarity surcharge, which is mainly paid by companies, the self-employed, freelancers and the highly qualified, should be abolished as an immediate measure. In a first step, it should be reduced by 2.5 percentage points to 3 percent in 2025. In a second step, it could then be completely abolished in 2027. The solidarity surcharge has already been abolished for 90 percent of taxpayers.
The paper also states that national climate targets should be replaced by European ones. "It does not help climate protection if Germany, as a supposed global pioneer, tries to make its economy climate-neutral as quickly as possible and consequently with avoidable economic damage and political upheaval." In particular, Germany should push through the abolition of regulations on energy efficiency, building energy efficiency and fleet limits for car manufacturers at European level.
Pioneering budget
The so-called adjustment meeting of the Budget Committee, which is scheduled for November 14, is considered to be groundbreaking for the continued existence of the coalition of SPD, Greens and FDP. This is where the 2025 budget will be decided.
Government spokesman Hebestreit dismissed speculation about a premature dissolution of the traffic light coalition on Friday afternoon - before the new Lindner paper became known. "I don't have the impression that anyone is about to beat the bushes," said Hebestreit in Berlin. He made it clear "that we will work together constructively for the next eleven months until the regular election date for the next Bundestag elections".
Lindner's paper speaks of the need to further reduce expenditure in view of the existing billion-euro gaps in the draft budget.
The government's draft federal budget for 2025 and the financial plan up to 2028 take steps to "quantitatively normalize and qualitatively improve the federal budget". In view of the lowered economic forecast and the gloomier tax estimate, it is said that these steps are not sufficient.
The paper states that the increased scope for debt due to the adjustment of the so-called economic component of the debt brake must be used exclusively to offset the shortfall in revenue.
Against subsidies for Intel
According to the paper, the planned subsidy for Intel should not only be postponed, but eliminated altogether. The previously committed funds totaling 10 billion euros could be taken from the Climate and Transformation Fund - a special federal fund. The struggling chip company Intel had postponed the construction of a plant in Magdeburg.
Migration policy and citizens' income
The paper speaks of a "turnaround in asylum and labor market policy". Due to a lower number of new asylum applications, payments to the federal states and local authorities for federal support would be lower.
The Citizen's Income standard rates had risen disproportionately in 2024. "In 2025, they will continue to exceed requirements and should therefore be lowered by abolishing the "grandfathering provision" in order to strengthen incentives to work." The paper also states that deductions for early retirement should be adjusted.
Memories of an ancient FDP paper
Reports of an FDP economic paper in Germany bring back vague memories of 1982, when the then Minister of Economic Affairs Otto Graf Lambsdorff (FDP) brought about the break-up of the social-liberal coalition. Unlike today, however, the Liberals had another power option back then: together with the Christian Democrats, they toppled Chancellor Helmut Schmidt (SPD) in a vote of no confidence and elected opposition leader Helmut Kohl (CDU) as Chancellor. The FDP and CDU/CSU currently had no majority in the Bundestag.
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