Munich’s Ifo Institute demands a fundamental reform of Germany’s tax and revenue system.
“Companies need investment and growth impulses, and work should pay more for households” said Ifo President Clemens Fuest on Tuesday. “Many regulations, exceptions, and privileges should be abolished, as they lead to more bureaucracy and hinder growth.” A reform is necessary in light of Germany’s high tax burden in international comparison.
According to the experts, it is crucial to relieve companies of tax burdens and thus promote long-term investments. “A step-by-step reduction of the corporate tax rate by five percentage points and the introduction of accelerated depreciation regulations would set the much-needed impulses” Fuest said.
In the opinion of the Ifo researchers, the extra work does not pay off enough for households with low and medium incomes. Therefore, the income tax should be lowered in the lower and middle range, and exemption limits should be increased. The experts recommend a fundamental reform of the transfer system: all existence-securing benefits should be bundled into a single transfer payment.
The relief measures could be financed through a “moderate increase” in the value-added tax, the institute said. “A higher burden through consumption taxes is less growth-hindering than the current focus on direct taxes like income and corporate taxes” said Andreas Peichl, head of the Ifo Center for Macroeconomics and Surveys.