call for help

Five ways the government could help German SMEs

mittelstand
The government is your personal trainer. Source: Artus Asset Management

As it formed earlier this year, Germany’s new coalition government promised to rejuvenate Europe’s biggest economy and provide an impulse for the future. So far, the country’s small- and medium-sized businesses, collectively known as the Mittelstand, aren’t impressed, and they make up 99.9 percent of Germany’s businesses. In their annual 2018 Mittelstand Report seen by Handelsblatt, nine industry associations demand more help finding qualified workers, less interference from the government and better digital infrastructure. Oh, and a tax reform a la President Trump.

“Ensuring the needs for skilled labor are fulfilled must be a priority,” said Hans Peter Wollseifer, president of the Central Association of Craftsmen. “And new instruments must be used to win more skilled labor.” In their report, the associations have five main gripes with Berlin.

Impfstoffrecherche gegen das Zika-Virus
More (skilled) workers needed. Source: DPA

Skilled-worker shortage

The Mittelstand is responsible for more than 90 percent of the country’s 1.2 unfilled job vacancies, according to the Institute for Employment Research. To meet the increasing shortage of skilled workers, the SMEs want the government to give more resources to vocational education and training. And although the coalition agreed to pass a skilled workers’ immigration law, the interior ministry and the labor ministry are unable to agree on the terms following the huge gains won by anti-immigrant politicians in last year’s parliamentary elections.

Germany currently has one of the lowest unemployment rates, 3.6 percent, making it hard to recruit new labor. In addition, its workforce of baby boomers is approaching retirement age. In the craft trades, for example, around 15,000 training places remained vacant last year, about 10 percent of all the available apprenticeships. The government has agreed to boost financial support for apprentices who faced high workloads but low pay. But the additional support will not take effect until 2020.

Another measure that may increase the workforce is a universal right to fulltime child care for women with primary school-aged children. But the government is not planning to implement this level of child care, which currently only covers kindergarten-aged children, until 2025.

Trump unterschreibt Steuerreform
Not so much a signature as a mountain range. Source: DPA

Tax reform

Small- and medium-sized companies are also jealous of President Trump’s generous tax cut and would like to see at least an attempt at reform in Berlin. “Last year alone, the government had a surplus of €35 billion,” said Eric Schweitzer, president of the German Chambers of Commerce and Industry, or DIHK. “It’s time to relieve those who made the biggest contribution to the record growth in tax receipts.”

The associations want lower income tax rates and the elimination of the solidarity tax, an income tax introduced to cover the costs of reunification. The government promised to eliminate the solidarity tax for lower tax brackets, which hits the Mittelstand disproportionately since the income tax of owners effectively serves as their corporate tax. Corporate tax reform would also be welcome but the last attempt, by previous finance minister Wolfgang Schäuble failed because of resistance from towns and villages, which rely on the income.

Arbeitskosten
German for "pay slip." Source: DPA

Labor costs

Plans to equalize employer and employee contributions for health insurance aren’t popular among the Mittelstand, because it will cost them €5 billion annually. Lowering their contribution to the unemployment scheme would only partially help. After all, the companies already have to fork out €50 billion annually in pay to sick workers. Although Germany ranks No. 7 in labor costs in the EU, the Mittelstand for once would be happy to stay in the middle of the pack. The EU average is €26.80 per hour while Germany averages €34.10.

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So many rules. Source: Imago

Cut red tape

The ever-expanding bureaucracy is a non-stop peeve of German companies. Mandatory reporting costs corporations about €45 billion annually. Some efforts have been made to streamline bureaucratic bear traps, cutting the burden by €105 million in 2017 with an aim to cut a total €360 million. The government’s “one-in, one-out” rule on regulations is also helping and has saved €14 billion since 2015 but it only applies to Germany. To create a noticeable cost limit for companies, the ‘one-in, one-out’ rule needs to be instituted on EU guidelines,” said Johannes Ludewig, head of the government’s national norm-control board.

Industrie 4.0
Paperless. Source: DPA

More Digital

The associations want the government to get more government offices and processes online and push for more modern, computer- and Internet-supported education, from elementary schools to universities and even vocational education. Experts continue to question the lack of technological equipment as well as abilities of German schools and children.

Companies also want clearer laws on digital data — there is still no uniform regulation on the ownership and transfer of mechanical and process information, which is vital to manufacturing and is multiplying geometrically.

Dana Heide covers the ministry of economic affairs for Handelsblatt, Jan Hildebrand  leads Handelsblatt’s coverage of tax, budget and economic policy, Thomas Sigmund in he bureau chief in Berlin and Frank Specht covers the German labor market. To contact the authors: heide@handelsblatt.com, hildebrand@handelsblatt.com, sigmund@handelsblatt.com and specht@handelsblatt.com.

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