Coalition Negotiations: Investments Instead of Subsidies? |

Status: 10/28/2021 10:48 a.m.

SPD, Greens and FDP are planning investments worth billions. In order to finance this, climate-damaging subsidies are to be dismantled. But it’s not that easy.

By Hans-Joachim Vieweger, ARD capital studio

At first glance, it seems to be a wonderful fit: there are more than 50 billion euros in environmentally harmful subsidies – at least that is what the Federal Environment Agency stated in a report from 2016. And just 50 billion euros are needed to finance the investments planned by the SPD, Greens and FDP in climate protection, digitization and infrastructure.

Hans-Joachim Vieweger
ARD capital studio

A fine thing, thinks Sven Giegold, Member of the European Parliament for the Greens, but who immediately points out: “Nobody who is familiar with the matter claims that the 50 billion can be harvested overnight.” Politically, this is completely unreal.

“Socially not negotiable”

This is especially true for the transport and energy sectors – according to the calculations of the Federal Environment Agency, this is where most of the environmentally harmful subsidies are. But it is precisely in these areas that you have to proceed cautiously, said Giegold. Further price increases are currently “socially not negotiable” in view of the already increased prices for heating and refueling.

Example 1: The fact that a lower tax rate applies to diesel than to gasoline costs the state around eight billion euros annually. To delete this would of course mean that the price of diesel would rise – the result would be an outcry at the petrol stations. Regardless of the fact that the lower diesel price is offset by a higher vehicle tax.

Example 2: The flat-rate commuter allowance currently relieves taxpayers by around six billion euros – a cancellation would not go down well in a time of rising petrol prices either. In view of the rising prices, some politicians recently even called for an increase in the commuter allowance.

Topic “company car privilege”

However: The Green politician Giegold can imagine quick corrections to one issue, namely the so-called company car privilege, which allows special tax considerations for the private use of company cars and is estimated by the Federal Environment Agency at three billion euros.

It is nonsensical that this also applies to seriously polluting cars. Politicians can act quickly here, says Giegold, who is a member of working group 22 “Finances and Budget” at the coalition negotiations.

Higher VAT on meat?

The European parliamentarian considers another proposal from the list of the Federal Environment Agency to be difficult: This also describes the VAT reduction for meat and other animal products as an environmentally harmful subsidy. Increasing the VAT rate for these products to the regular rate of 19 percent – while other foods would continue to be taxed at seven percent – could bring the state five billion euros in additional income. But such a measure would certainly lead to huge protests.

Giegold therefore considers this proposal to be unrealistic. Animal welfare is better served with other measures, such as mandatory labeling of the keeping of animals. And that is an issue for the EU, he thinks.

Air transport subsidies

Brussels also has a say in other subsidies, especially when it comes to discounts for air travel. If the energy tax exemption for kerosene and the VAT exemption for international flights were eliminated, the German state could earn around twelve billion euros more – but that would not only result in additional costs for passengers, but also with a competitive disadvantage for German airlines. The Federal Environment Agency also advocates EU-wide solutions on this issue.

This leads to the fundamental question of how subsidies can be dismantled at all – because in the short term, every reduction in subsidies means that consumers and companies either receive fewer subsidies (the Federal Environment Agency, for example, also sees the promotion of new houses as an environmentally harmful subsidy) or must pay higher taxes.

Expert: Recipients have to be able to adapt to it

All of this does not work overnight, confirms Professor Stefan Kooths from the Kiel Institute for the World Economy, which publishes an annual subsidy report. According to Kooths, it would be unfair if the state suddenly stopped subsidies that it might have been able to provide over a longer period of time. Anyone affected by such a measure must be able to adjust to it – as a consumer or as an entrepreneur.

This in turn means that the billions that are to be invested in the coming years will not be available as quickly as some have hoped. Especially since a new federal government can usually not decide alone on corrections in tax law, the states usually have a say.

Expiration date for subsidies

Economist Kooths thinks that subsidies are viewed critically, “especially since there are a large number of subsidies that cannot be economically justified, i.e. where the cancellation not only provides the state with additional funds, but also where it creates distortions the economic fabric. ”

However, a distinction must be made: “Whenever the state pays fewer subsidies, the state share decreases, and whenever it removes tax breaks, the state share increases” – the liberal economist is critical of the latter, despite all his sympathy for the reduction of subsidies.

From his point of view, it would be particularly desirable that subsidies are always given a fixed expiry date: “They are then only valid for a certain period of time and are then resubmitted. And if they are not confirmed, they automatically expire.”

A consideration that is also one of the principles of an “effective, efficient and environmentally friendly subsidy policy” proposed by the Federal Environment Agency. Today it presents its updated report on environmentally and climate-damaging subsidies. According to reports, the sum has now increased further.

Dismantling environmentally harmful subsidies: easier said than done

10/28/2021 8:58 am

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