The big economic bet

No purchase premiums for combustion engines, but lower VAT on all products: this is how the grand coalition wants to overcome the economic crisis. But it has not been said whether this strategy will work.

Chancellor Angela Merkel (CDU) and Finance Minister Olaf Scholz (SPD) after the coalition meeting

Et was the surprise of Wednesday evening: when Chancellor Angela Merkel (CDU) and Finance Minister Olaf Scholz (SPD) appeared in front of the press after more than 20 hours of negotiations on an economic stimulus package, many were waiting for one point in particular: the purchase premiums for cars . Only for electric cars or also for combustion engines, and above all: at what amount?

But then it was about something completely different: A reduction in VAT in the next six months should get the economy plagued by the consequences of the Corona going again. Whether CDU, CSU or SPD: All party leaders see them as a central part of the economic stimulus package, the Bavarian Prime Minister Markus Söder speaks of the “heart” of the program.

Before the start of the crucial talks, SPD leader Saskia Esken had drawn a red line: No bonus for cars with internal combustion engines – although even SPD Prime Minister and VW Supervisory Board Stephan Weil would have liked to see one, Economics Minister Peter Altmaier (CDU) anyway. After long hours of negotiations, interrupted again and again by discussions within the individual parties, then the alternative solution: no promotion of a specific branch of the economy, but a cross-sector solution. The irony of the story: CDU / CSU and SPD are implementing a proposal by the FDP, of all things, by lowering VAT. She recently asked for one, if only for three months.

In the first reactions, the praise for this move outweighed – paired with a certain relief that, unlike in the time after the financial crisis of 2008/2009, the auto industry was unable to assert its interests to the extent desired. Particularly in the ranks of the SPD supporters, it is emphasized that this time the party prevailed over the Union, which had brought it through important points. Which you can definitely see. People with low and middle incomes, who spend a large part of their net income on consumption, will particularly benefit from a VAT cut. The complete abolition of the solidarity surcharge, called for by the CDU, would have helped high earners in particular – which the SPD absolutely did not want. There is not a word on this in the 15-page, 57-point decision paper.

But can a temporary reduction in value added tax – from July to December the standard rate should drop from 19 to 16 percent, the reduced rate from 7 to 5 percent – really mitigate the corona-related economic slump and bring Germany back on the growth path? It would be desirable, after all, the grand coalition is allowing this project to cost 20 billion euros. But whether it will come that way is far from being said.

How much tax cut does the consumer get?

The fact that Finance Minister Olaf Scholz appealed almost urgently to companies on Wednesday evening that they should not keep the tax cut to themselves, but actually lower prices for consumers, shows one of the problems: How much of this tax cut will consumers actually receive? In areas with high levels of competition, such as everyday goods, the companies are in fact likely to pass on a large part of the discount. It remains to be seen whether this is also the case with durable consumer goods. In addition, the grand coalition is not proceeding consistently on this issue: the VAT cut on food that was decided a few weeks ago, also for a limited period, was explicitly sold in Berlin as an aid to restaurateurs. There the government does not expect prices for consumers to fall. But should the trade pass on the savings?