IW economist on coalition agreement: “Not a great success, but a good start”

Thursday, November 25, 2021

IW economist on coalition agreement
“Not a big hit, but a good start”

The traffic light coalition set the bar high at the beginning of their reign. The ambitious goals for climate protection, digitization and housing construction, for example, will devour billions. However, it remains unclear where the money will come from. ntv.de talks to the economist Tobias Hentze from the Institut der Deutschen Wirtschaft IW about debt brakes, climate funds and gaps in financing.

ntv.de: It is day one after the coalition agreement of the new traffic light government. What signature, would you say after a rested reading, carry the economic policy goals in the treaty? Which coalition partner scored the most?

Tobias Hentze: It was noticeable that the representatives of all three parties were in a relatively good mood. One can say that there were very clear reasons for this in terms of content. The SPD has prevailed on important social issues. The key words would be the minimum wage, basic child benefits and citizen benefits, i.e. the reform of Hartz IV. The Greens have left their mark on climate protection. The topic plays a very important role in the entire coalition agreement. And the first thing that comes to mind at the FDP is digitization. The subject also runs through the treaty. So you can really say that the handwriting of each of the three parties is clearly recognizable.

In the first reactions one word comes up again and again: “ambitious”. Digitization, an early phase-out of coal, the end of the combustion engine, 15 million e-cars on German roads by 2030, the construction of 400,000 apartments per year are not only big goals in terms of content. All of this also costs a lot of money. Has the calculation been done solidly here?

As with all coalition agreements, the first thing that applies here is that paper is patient. Many declarations of intent have been formulated here. We will see to what extent they are solidly financed. In the end, this government will also be judged by its deeds. So far I can still see some gaps or question marks in the financing. The projects cost a lot of money and on most points it is not clearly formulated in the contract where it should come from.

It is up to the new government to keep the debt brake in place not easier …

In any case, the debt brake means that debt has to be very restrictive, because that’s how the rules are. But the traffic light coalition has at least two ideas on how to get money, that has to be said clearly. On the one hand, public companies such as Deutsche Bahn, the Federal Real Estate Agency and KfW are to be more closely involved. You should do more than before. And that goes beyond the debt brake. On the other hand, the energy and climate fund is to be expanded. Money is to be parked here for the next few years. The fact that the debt brake is suspended this year and next and the restrictive rules of maximum indebtedness do not apply means that the fund can be replenished with debt. This money can then be spent from 2023. This is the new government’s most concrete funding approach.

Is that a lot of money? Would you say you made a big hit at the right time?

It’s not a big hit because the government is shying away from reforming the debt brake. But since the amount of debt is unlimited in 2021 and 2022, the question now arises of how much money the new coalition actually intends to park in this fund. There is no upper limit. The question is also a legal one: is it allowed to fill an energy and climate fund with billions on the grounds that we have a pandemic? That is open and somewhat contradicting.

The traffic light coalition wants to achieve the coal phase-out in 2030 if possible. But at the same time the EEG surcharge, with which green electricity has been subsidized for a good 20 years, is abolished. The CO2 tax will not be increased. And so far, new climate money has only been hinted at in the coalition agreement. Doesn’t such a feat of strength need a specific financial framework?

A significantly accelerated expansion of renewable energies is the essential prerequisite for successful climate protection in Germany. Hence, this goal is right and important. From my point of view, this also applies to the abolition of the EEG surcharge, because it provides relief in important areas for households that would otherwise be overwhelmed. But there are question marks when it comes to financing, also because of another aspect that the traffic light government has taken on the cause: the reduction of subsidies and tax breaks. All expenses should be questioned. First of all, that’s a good approach. The question, however, is: does this favor or hinder a transformation? The traffic light coalition has given itself two examples: one is the tax privilege for diesel vehicles and the other is the taxation of hybrid vehicles. There should be restrictions on them. But the money that is saved here can certainly not finance all of the climate protection projects. An open question is therefore: How much will the new traffic light government approach to tax breaks? The coalition agreement does not answer. There will still be discussions.

The combustion engine should be over by 2030. Around 15 million fully electric cars will then be driving on our roads. “A little bit of Christmas and Easter at the same time“, Has the dhe comments on the car expert Ferdinand Dudenhöffer. That Angela Merkel had already propagated the topic of the “lead market for e-mobility” in 2010 and nothing got around and nothing was said about new jobs in the coalition agreement. Do you think the traffic light government has a better plan here?

There are relatively many subsidies and benefits in this area. Keyword: e-car premium. The old government has also tried to advance the transformation in this way. The goals of the old and the new government are in fact not that different: climate protection, digitization, social equality, competitiveness, we all know that from previous coalition agreements. Of course, the labor market will also change if we transform the economy. A positive aspect of the coalition agreement is that the government is committed to investing more in research and development, including promoting startups, for example. This is the basis for making progress in new technologies, creating future jobs and generating future growth. I said at the beginning that paper is patient. It depends on the deeds.

The traffic light coalition has also raised the bar in housing construction. 400,000 new apartments are now to be built every year. Only 100,000 of them are to be publicly funded, the rest come from private investors. What do you think of that?

Apartments are an important issue. It is correct that the traffic light focuses here. But from our point of view, the number of 400,000 apartments is oversized in the medium term. Although the demand is still high in metropolitan areas in the future, in small towns and in rural areas the traffic light plan threatens to overshoot the mark. Vacancies could become a problem. This leads to upheavals on the housing market.

How do you assess the new idea of ​​the share pension that is laid down in the coalition agreement?

The topics of pensions and taxes are definitely two chapters that, in my opinion, are not ambitious. Very little should happen there. When it comes to pension, you want to stick to the stop lines and add the share pension to the system. Ten billion euros are to be invested here in 2022. That is a minimal amount considering the pension payments we have. Even if the return should be ten percent, it remains a drop in the ocean. In the short and medium term, this cannot make a significant contribution to the statutory pension. At most it has a symbolic effect. In fact, this has no stabilizing effects for the next few years. When it comes to taxes, you can see that different parties can neutralize each other. When I think back to the election campaign, the FDP wanted broad relief for everyone. The SPD and the Greens wanted higher taxes for top earners and the wealthy, in some cases also for companies. The result: “We won’t do anything about it”. Normal earners have to forego relief because nobody wanted to move too much here. I can see a certain insanity in the tax chapter. The parties have blocked each other to the detriment of low and middle income households.

The German economy is now only second-rate when it comes to various megatrends – digitalization is just one example. The hope is that Germany will start catching up under the traffic lights. Against this background, what rating would you give the coalition agreement?

The right topics are set in the coalition agreement. How these should be implemented, there are open questions. But overall that’s a good start. But it can also be that you have to revise the grade again after a year or two.

Diana Dittmer spoke to Tobias Hentze