Cash Question

German Industry and Unions Disagree on How to Pay for Key Spending Needs

merkel afp
German Vice Chancellor (l) Sigmar Gabriel, Chairman of the Confederation of German Trade Unions Reiner Hoffmann, Chancellor Angela Merkel and Ulrich Grillo, president of the Federation of German Industries met outside Berlin this week at the government guest house in Meseberg.
  • Why it matters

    Why it matters

    German innovative strength is at risk without increased spending to improve infrastructure and bolster high-tech exports.

  • Facts

    Facts

    • The German federal government took in a surplus of more than €4 billion, or about $5.2 billion, during the first six months of 2014.
    • An economic research institute says billions of euros in new infrastructure spending is needed in Germany.
    • The German Confederation of Trade Unions wants to reinstate the net worth tax and significantly increase the inheritance tax.
  • Audio

    Audio

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The German government wants to strengthen the country’s economy through high-tech exports and more investment in transportation, energy and telecommunications. But at the 5th Dialogue Between Social Partners this week, representatives of employers and unions couldn’t agree on where the money would come from.

Germany’s innovative power must be preserved, Chancellor Angela Merkel told the gathering in Meseberg, about 70 kilometers north of Berlin. She talked about a new high-tech strategy that her cabinet was expected to ratify on Wednesday. According to officials at the talks, the government is concentrating on areas such as the digital economy and society, sustainable economies and innovative working environments.

There was agreement between the government and the social partners that investments must be increased if Germany is to retain its innovative vitality. “The net investment quota in private companies is not high enough,” said Finance Minister Sigmar Gabriel. “The same applies to investment by the government.”

Eric Schweitzer, president of the Association of German Chambers of Commerce and Industry, said the focus of government should be on investing in the future.  “But more leeway also needs to be given to companies for investments and innovations,” said Mr. Schweitzer. He argued for a return to the declining balance method of depreciation for investments and better conditions for risk capital. The government especially should not make changes in inheritance tax laws that could hurt companies, he said.

Not much time is left because the country is not meeting its infrastructure needs.

Not much time is left because the country is not meeting its infrastructure needs. An analysis by the Macroeconomic Policy Institute found that since 2003, the government has not kept up with construction or repair of bridges, streets and schools. The economic research group, which is close to trade unions, said billions of euros in new infrastructure spending is needed.

But there is controversy over how to pay for it. There’s not much wiggle room for federal and state governments because of debt-brake rules that limit government borrowing. The federal government took in a surplus of €4 billion, or about $5.2 billion, during the first six months of 2014 – the first time since 1991, said Norbert Barthle, a spokesman for budgetary policies for the Ms. Merkel’s center-right Christian Democratic Union party. At best, he said, it’s “a pleasant situation that doesn’t allow room for increased spending in the coming year.”

Unions are arguing for increased taxes. Next week, the German Confederation of Trade Unions will affirm its demand for reinstating the net worth tax and for “significantly increasing” the inheritance tax.

But Mr. Gabriel, economics minister and head of the Social Democratic Party, is opposed to both measures. And German industry rejects putting new burdens on citizens. In view of record tax revenues, it must be possible to “do without new taxes and fees,” said Matthias Wissmann, president of the Automobile Industry Association.

So the only remaining possibility is more private investment in transportation, energy and telecommunications fields, as the chancellor  recently called for. A commission of experts set up by Mr. Gabriel is charged with investigating how, for instance, the capital of insurers can be used for investments that the federal government does not want to or cannot carry out itself.

There was also talk about uniform wage agreements at the meeting. Ms. Merkel said progress was being made toward a law on reducing the power of small professional unions. She said the German labor minister, Andrea Nahles, had discussed the issue inside the government coalition and there would be detailed talks in coming days.

This article was translated by George Frederick Takis. Greg Ring also contributed to this story. To contact the authors: delhaes@handelsblatt.com and specht@handelsblatt.com

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