Tax Benefits of 1.8 Billion Euros Could Well Be Discontinued
ResearchEvaluation Made for the Federal Ministry of Finance
Billions of euros in tax benefits have been found to be ineffective and could well be discontinued. This is the conclusion of a study by the FiFo Institute for Public Economics at the University of Cologne, ZEW Mannheim, the ifo Institute and the Fraunhofer Institute for Applied Information Technology (FIT). The four research institutes evaluated a total of 33 state tax benefits amounting to roughly 7.4 billion euros on behalf of the Federal Ministry of Finance.
“The majority of the tax benefits examined scored only moderate results. As many as ten measures, totalling 1.8 billion euros a year, are indeed so weak that they should be redesigned immediately or discontinued altogether,” says head of the evaluation team and managing director at the FiFo Institute, Michael Thöne. These mainly include reductions and exemptions from energy and electricity taxes. “However, the pros and cons of these benefits are closely intertwined. Especially with these taxes, there are also large reductions, which are still indispensable,” Thöne adds.
The studies on the effectiveness, relevance, sustainability and transparency of the 33 different tax benefits in income tax, motor vehicle tax, as well as energy and electricity tax show how crucial regular evaluations are for a political decision-making that aims to be increasingly evidence-based and result-oriented. “For climate policy to be financed sustainably, tax benefits should be granted in a more targeted, i.e. more restricted, manner in future,” says ZEW economist Daniela Steinbrenner.
“Unfortunately, the effects of the individual exemption instruments in the area of income tax for the commercial economy mostly fall short of their intended objectives,” says Florian Neumeier from the ifo Institute. “Most of the benefits granted miss their purpose, and even lead to free-rider effects.”
The objectives of the benefits lie in very different policy areas
The Fraunhofer FIT quantified the revenue losses for public budgets resulting from all tax benefits. “The tax shortfalls calculated for the individual measures range from just under one million to well over one billion euros per year,” explains Sven Stöwhase, head of the Microsimulation Models Department at FIT. “The amounts vary from very small to very large – with sometimes very different numbers of people and companies directly benefiting from tax reduction. A solid quantification is the central benchmark for what is acknowledged by policymakers. It allows all citizens to decide for themselves whether the results are worth the taxpayers’ money spent.”
The examples given only represent a small part of the results obtained. The various objectives of the benefits evaluated lie primarily in the areas of climate protection; international competitiveness; housing; the preservation of cultural heritage and historical sites; worker participation; and the promotion of public transport, agriculture and shipping.
The research results offer fast access to a rich source of findings and instrumental suggestions on many policy fields via a uniform scoring system and short subsidy identification sheets – despite the more than 1.000 pages. The results of the evaluations are compiled in a joint volume. There and in the five sub-reports A to E, the evaluation of each of the 33 tax incentives is also presented on a uniform, two- to three-page subsidy identification sheet.
Upon request, we will provide the sub-reports individually.