A leading economist at the Ifo Institute for Economic Research, Clemens Fuest, has called for a long-term strategy from the future government to drive economic development.
In an interview with the Augsburger Allgemeine, Fuest stated that it is pointless to discuss budget policy without a strategy in place. He identified three key points for the economic and financial policy of the new government to focus on.
Firstly, Fuest emphasized the need to address the labor market, citing a shortage of job offers in many areas despite the current economic downturn. He stressed the importance of making it worthwhile to work and ensuring that it is possible to do so, taking into account factors such as work-life balance and the transition from school to work.
Secondly, Fuest pointed out an investment problem, stating that the housing market is weakening and companies are investing too little. This, he said, is fatal for the long-term potential of the German economy, as it not only affects the current economic situation but also the production capacity of the economy. He attributed the problem not to a lack of consumption but rather to the need for tax reforms to foster growth.
Thirdly, Fuest called for more innovation, urging the simplification of company founding and the better transfer of knowledge from research to the economy. He emphasized that companies need incentives to invest in research and development.
In general, Fuest believes that a critical review of the state’s tasks and of subsidies and tax benefits for private individuals is necessary. He suggested that tax cuts for companies would be more sensible for economic growth in the long run.
Fuest also sees potential for savings in the social security system, particularly in the pension and retirement system. He proposed limiting the annual growth of the supplementary pension contribution in the federal budget to one percent, which would free up funds for the states to invest elsewhere.
Additionally, Fuest mentioned the possibility of using “special funds” for the German military as a kind of stimulus program, but noted that the potential is limited due to the lack of a long-term perspective for the defense industry. He pointed out that the number of unemployed engineers and programmers needed for such projects is relatively small and that these skills are already in short supply in other industries.