German Ruling Parties Clash, Let Competitiveness Languish

Left and right are disputing relatively minor policies while neglecting Germany’s long-term prosperity.

German economy minister Sigmar Gabriel and Chancellor Angela Merkel enter a cabinet meeting in Berlin, January 14
German economy minister Sigmar Gabriel and Chancellor Angela Merkel enter a cabinet meeting in Berlin, January 14 (Bundesregierung)

A year and a half in power, Germany’s “grand coalition” is starting to look strenuous. The ruling left- and right-wing parties openly disagree about tax and immigration policy while measures that could improve German competitiveness languish.

The Finance Ministry announced this week that the government was considering options to phase out a “solidarity surcharge” that can reach up to 5.5 percent for high incomes.

The levy was introduced in 1991 to help pay for German reunification and raised €15 billion last year.

Chancellor Angela Merkel’s conservatives want to do away with the surcharge by 2020 when the federal budget should be in sufficient surplus to be able to afford tax relief.

The Social Democrats, Merkel’s junior coalition partners, insist on keeping it. They agreed to no changes in the tax code when they joined the coalition despite having campaigned for higher taxes in the 2013 election.

Earlier this month, the Social Democrats also criticized finance minister Wolfgang Schäuble’s proposal to add €6 to monthly child benefits, describing it as insufficient.

“Families are not the piggy banks of the nation,” said Schäuble’s fellow cabinet minister Manuela Schwesig who is in charge of family policy.

Carola Reimann, deputy leader of the Social Democrats in parliament, said, “There’s no way we’ll go along with this.” She was also keen to point out that Schäuble’s conservatives had promised a €30 increase in child benefits in their manifesto.

Currently, German parents get €184 in monthly benefits for their first two children. For the third child, the amount rises to €190. For the fourth and each subsequent child, the subsidy is €215 per month.

The ruling parties also contested immigration policy in parliament this week. Thomas Oppermann, Reimann’s group leader, called for a Canadian-style points system on Tuesday. Economy minister Sigmar Gabriel endorsed the plan.

Oppermann warned that Germany risked shortages of workers in certain professions unless it changed its immigration rules. “That threatens our social security system, especially pensions,” he said.

Since 2012, only 24,000 high-skilled workers have moved to Germany under a Blue Card scheme that requires proof of salary and a university degree. Oppermann argued that the requirements are too strict.

The conservative interior minister, Thomas de Maizière, disagreed and told lawmakers the existing laws were sufficient.

Bavarian prime minister Horst Seehofer, who leads Merkel’s more reactionary sister party, the Christian Social Union, took exception to the left’s proposals, saying last month, “If a country has a million immigrants annually, then we do not need a law with more immigration.” He said Germany could not be the “social service for the whole world.”

The relatively minor policy disputes threaten to overshadow reforms Germany needs to make in order sustain its prosperity in the long term.

Although the country prides itself on having low unemployment — 4.8 percent in December — the left-right coalition has made the labor market less flexible. It limited temporary work contracts to eighteen months and introduced a national minimum wage of €8.50 per hour that economists and employers fear will slow jobs growth.

It has also made pensions more generous. Workers are now allowed to retire after 45 years on the job even when they’re only 63 years old — four years below the statutory retirement age. Yet over the next ten years, Germany’s workforce is projected to shrink by some 6.5 million, the equivalent of all the workers in Seehofer’s Bavaria.

The Social Democrats seem to believe the solution is bringing in more workers from abroad at a time when the Germans are catching up with other Western Europeans in expressing their discomfort about high immigration.

Merkel’s conservatives, meanwhile, are so obsessed about eliminating the federal deficit to start paying down the national debt that they’re neglecting public investment. German gross government investment as a share of economic output is low at 1.6 percent. The Netherlands and Sweden invest twice as much in everything from electricity grids to roads.

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