The German Tax and Contribution System Is Inhibiting Growth

Today the German Bundestag concludes its general debate on the national budget for the coming year. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at ZEW Mannheim, comments on this matter.

“At first glance, the national budget seems to be fine. Investments are increasing moderately and it looks as if no further debt will have to be made. Although this is good news, there is no reason to be euphoric. Expenditure on health care, pensions and long-term care is growing dynamically, while revenue growth is flattening out.

From today’s point of view it remains completely unclear how the federal government plans to adhere to the ‘debt brake’ rule in the coming years without raising taxes. Higher taxes combined with already rising social security contributions would further inhibit growth. The current budget debate greatly lacks awareness of the fact that our tax and contribution system is a primary inhibitor of growth and that priorities must finally be set again when it comes to spending.”