Impact on GDP low
Study doesn’t leave much room for growth opportunities law
November 10, 2023, 8:40 a.m
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The traffic light government, especially the FDP, and German companies have great hope in the Growth Opportunities Act. However, according to a study by the German Economic Institute, its impact will be small. There would be hardly any new jobs and a lot of people would suffer.
According to a study, the planned tax relief for companies through Federal Finance Minister Christian Lindner’s Growth Opportunities Act will hardly improve economic dynamics overall. The law will only increase German economic output by a total of around seven billion euros between 2024 and 2028, according to an as yet unpublished study by the German Economic Institute (IW), as the “Rheinische Post” reported.
Annual economic growth will increase by 0.05 percent. “Even if the steps are going in the right direction, the effect on investment activity and the German gross domestic product is likely to be small,” is the institute’s conclusion. The IW calculated these results using the “Global Economic Model” from the Oxford Economics think tank; The planned tax relief was fed into this statistical model.
According to the government draft, the total relief volume is 32 billion euros between 2024 and 2028. An investment bonus is intended to promote the climate-friendly restructuring of the economy. In addition, it will be easier to offset losses for tax purposes, and there will also be temporary degressive depreciation for new residential buildings and other options for special depreciation.
A maximum of 9,000 additional positions
The simulation calculations would therefore show that the German economy’s fixed investment as a result of the Growth Opportunities Act in 2028 would be around 0.6 percent higher than without the law. “Cumulatively over the years 2024 to 2028, the real investment increase is around eleven billion euros,” the IW continues, according to the report. “The resulting employment effect amounts to a maximum of almost 9,000 additional jobs in the time frame under consideration from 2024 to 2028.”
The tax relief for companies provided for in the draft law is far from sufficient “to even come close to achieving the investment volume required for the transformation,” writes study author Tobias Hentze. However, it would lead to a disproportionate reduction in tax revenue for municipalities.
Municipalities lose almost two billion euros
From the perspective of the states, the bone of contention with the law requiring approval is that they and the municipalities would have to bear the main burden. The bill puts the tax shortfall at 2.6 billion euros for the federal government, 2.5 billion euros for the states and 1.9 billion euros for the municipalities.
“The municipalities receive around 15 percent of the total tax revenue, but 28 percent of the shortfall in revenue from the Growth Opportunities Act goes to the municipalities,” explains Hentze. “The disproportionate burden on municipalities amounts to a cumulative total of around four billion euros in the period from 2024 to 2028.” This therefore raises “the question of excessive demands” on cities and municipalities.
As the newspaper further reported, the federal states reportedly do not want to wave the law through in the Bundesrat and call the mediation committee.