SUBSIDIES SPIKE

The Prodigal German State

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Green energy, brought to you by government subsidies. Picture source: Reuters

Angela Merkel may now be touted as one of the last world leaders who embraces liberal values, but a new report Monday shows that the German government is ramping up state subsidies for things like electric cars, coal miners and the children of wealthy entrepreneurs.

The state subsidy report, which was obtained by Handelsblatt, says that government subsidies and tax incentives will rise to €25.2 billion ($30 billion) in 2018, an increase of 17 percent over the level in 2015. As a percentage of GDP, Germany now has the highest level of subsidies in the European Union.

Despite promises to subject new subsidies to an intensive review, Ms. Merkel’s governing coalition has rolled out 11 new government handouts, for things like the purchase of an electric car and cleaner diesel vehicles. Coming three months before parliamentary elections, this may be designed as a partial response to the scandal about diesel car pollution.

“Instead of spreading goodies around, politicians should wield the ax to privileges and subsidies after the next election.”

Michael Thöne, financial research institute FiFo in Cologne

Even Bavaria’s conservative Christian Social Union had warned that to take away subsidies represented a tax increase.

The largest single subsidy is for €1.8 billion to allow the German state bank KfW to offer low interest loans to support energy efficiency improvements during refurbishment of existing buildings. Coal mining gets a €1 billion subsidy.

The largest tax subsidy is giving the children of entrepreneurs a break on the inheritance tax due when they inherit operating companies from their parents.

Farmers get several types of new assistance, from protection for bad weather to coping with the “market risks” in growing food.

Ms. Merkel’s government, which had been especially critical of Greece for giving state aid to the country’s wealthy shipowners, now proposes to do the same: From this year, German shipowners will be exempt from value added tax, a kind of sales tax common in Europe.

 

Martin Greive in Berlin reported this story for Handelsblatt. Charles Wallace in New York City adapted this story to English for Handelsblatt Global. To contact the author: greive@handelsblatt.com

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