In view of skyrocketing prices, workers are demanding wage increases, most of which end up at the tax office. The President of the Taxpayers’ Association denounces this. He thinks the government and central bank are doing the wrong thing to get inflation under control and to help people. He gets really angry with the relief package and proposes a new tariff for taxes.
In fact, inflation is fine. If I have debts, I wait a bit and they’re gone.
Reiner Holznagel: That probably applies to very few citizens. Most of them suffer from the fact that their real incomes are nowhere near as high as the prices they have to pay in supermarkets and elsewhere.
But it’s good for the state: its mountain of debt, which the taxpayers’ association measures in real time, will melt away on its own.
Wooden Nail: The possibility is limited. The debts that the state took on to deal with the corona crisis must be repaid. In addition, there are debts for the EU’s reconstruction fund, which the EU countries are also supposed to repay from 2028 – above all Germany. You can’t hope too much for inflation. A large part of government debt is also structured in such a short-term manner that rising interest rates quickly make themselves felt in financing in times of inflation. Politically, it is also not a viable concept to rely on inflation in the fight against debt. Above all, however, inflation hits the economy. It is doubtful that she can maintain her high level, which in turn has consequences for everyone.
When everything gets more expensive, workers demand better pay. Do you see a wage-price spiral starting?
Holznagel: We are under extreme tension: the price increase for energy and raw materials is enormous. The supply chains are broken. When Shanghai coughs, Europe is in bed with the flu. In addition, there is a shortage of skilled workers and inflation. The scope for higher wages is small. It is all the worse when wage increases are taxed away.
You speak of the cold progression. . .
Holznagel: … I’ll give you an example: the union wants to push through a wage increase from 11.55 to 13.73 euros for building cleaners, which corresponds to an increase of 19 percent. The monthly wage tax that is due would then increase from 153 to 235 euros. That’s an increase of 54 percent! That’s why we’re calling for at least getting rid of cold progression altogether.
Is that politically feasible?
Holznagel: Other countries can do it. They use wage tax to provide relief when inflation rises. For example, in Sweden, the key figures in the income tax rate are regularly adjusted for inflation. That would also be important in Germany! That is why we are calling for a “tariff on wheels”. That would really be a sensible change.
Now there are the relief packages: train travel for nine euros, discount when filling up. . .
Wooden nail: The relief packages don’t really do anyone any justice. Many people are up to their necks in water because prices are rising everywhere – and then politicians come with a nine-euro ticket for regional train travel in summer and believe that this will give everyone a taste for traveling by train. It’s getting a little gaga.
Can’t you get anything out of the measures from the relief package?
Wooden Nail: These measures are a poor political compromise. It would have been better, for example, to only levy the reduced VAT rate of seven percent on electricity. Everyone really needs electricity – it is a basic need that would justify reduced VAT. And renewable energy is increasingly being used to generate electricity. It would therefore have a good steering effect if electricity were made cheaper.
After all, the government is abolishing the surcharge for renewable energies.
Holznagel: The previous government decided that, it is not an invention of the traffic light. But above all: The EEG surcharge on the electricity price will be abolished because the taxation of CO emissions has been introduced. The subsidies to the operators of the green power plants are not out of the world – instead, they are burdened with the taxpayer, because the financing will be handled through the federal budget in the future.
If you were finance minister, where would you save?
Wooden Nail: Everywhere. Everyone who has a seat in the cabinet must have the duty to distinguish themselves as austerity ministers. And that works.
The Bundeswehr was saved to death.
Wooden Nail: No. Mismanagement has resulted in the Bundeswehr not being able to function properly. My example is always the sail training ship “Gorch Fock”, which was renovated at great expense. We could repair the “Gorch Fock” a thousand times and spend so much money without this improving the condition of the Bundeswehr. Or take the German Bundestag with its historically large number of MPs: Parliament now has total costs of more than one billion euros! It is said that these are the running costs of democracy. But if I have to save, I also lower my operating costs and don’t heat the room at night in winter with the windows open.
My impression is that the debt brake no longer works either. In any case, she is constantly exposed.
Wooden nail: The government is claiming exceptions. She can do that too. The pandemic was such an exception. What is not possible, however, is making money loose in an exceptional situation and later spending it on something other than solving the very problem for which the debt brake was relaxed. Unfortunately, politicians try to do that again and again.
The debt brake should apply again next year, says Finance Minister Christian Lindner. Do you believe in it?
Wooden nail: That can work. The state has significant tax revenue. And there are still dormant credit authorizations from the asylum reserve. The repayment plan for the repayment of the corona debt has now been stretched. There is enough room in the budget to be able to comply with the debt brake again in 2023.
A drop in inflation is not really in sight. Why is the European Central Bank doing nothing?
Holznagel: The ECB pursued politically motivated monetary policy and thus maneuvered itself into a dead end. Actually, they should raise interest rates significantly! But that would also affect households that had to secure their existence with loans during the crisis. But above all: Very highly indebted countries in Southern Europe would quickly stumble due to skyrocketing interest costs. The low interest rate policy of the ECB has planted the seeds for the next sovereign debt crisis. Nevertheless, the ECB must act now and stop the government bond purchase program and thus at least stop the money multiplication a little!
The article “Taxpayers’ Association explains how the traffic light could easily relieve all citizens” comes from WirtschaftsKurier.