Do municipalities increase the fees?
Economist: Inflation problem far from solved
4/23/2023 2:39 p.m
Employees in the public sector can look forward to a significant wage increase. However, as a result, all citizens have to reckon with rising municipal fees. And inflation is likely to remain high.
Economists see light and shadow in the collective bargaining agreement for the approximately 2.5 million employees of the federal and local governments. “All in all, the increase in wages for the public sector compared to the private sector is not completely out of the ordinary,” said Commerzbank chief economist Jörg Krämer.
After the massive loss of purchasing power due to high inflation, it was clear that wages in the public sector would also rise significantly. “But it is also true that the municipalities will pass on part of the increased labor costs to the citizens in the form of higher fees – the companies are acting in a similar way,” added Krämer. “The inflation problem is far from solved.”
For ING chief economist Carsten Brzeski, the result fits into the picture of other financial statements: “For this year, the loss of purchasing power will be absorbed, but not completely compensated”. Next year, real wages could rise again for the first time in years. “As good as this situation is for consumers, of course, it is all the more difficult for the ECB,” said Brzeski. “Inflation is thus becoming more and more of a demand-driven problem and will remain stubbornly high.” This is one more reason for the European Central Bank (ECB) to continue raising interest rates. In March, the ECB raised its key interest rate from 3.0 to 3.5 percent in the fight against high inflation. This makes loans more expensive, which is why many projects in the construction industry are currently being put on hold.
“The state is the big winner of inflation”
For the municipalities, according to DIW President Marcel Fratzscher, the estimated additional costs of 17 billion euros due to the deal mean “a massive financial burden that will lead to further restrictions on services of general interest”. For more than 20 years, almost every third municipality in Germany has not been able to adequately guarantee public services. “The crisis in the municipalities will continue to worsen until politicians implement an urgently needed reform of the federal-state financial equalization and better financial resources and debt relief for the municipalities,” tweeted the President of the German Institute for Economic Research (DIW).
“The state funds are available, because the state is the big winner of this inflation, because the federal and state governments are bubbling with tax revenue.” However, the federal government in particular preferred to return a large part of this money to higher earners through the tax relief of cold progression.
In the fourth round of negotiations, the bargaining parties had achieved a result during the night. The agreement provides for an inflation adjustment of 3000 euros in installments. As of March 1, 2024, the fees are to be increased by an amount of 200 euros in a first step. In a second step, the amount then increased should increase again linearly by 5.5 percent. However, the increase should be 340 euros in any case, the contract period was set at 24 months.