According to Clemens Fuest, president of the Munich Ifo Institute, early elections would be the better option if the federal government fails to agree on necessary reforms. Speaking to the “Neue Osnabrücker Zeitung”, Fuest suggested that if a government cannot reach a consensus on urgently needed reforms, it might be better to hold new elections, even if it takes several months. However, he also stressed the urgent need for the federal government to find a successful, common economic policy.
Fuest advised, among other points, a tax reform that could stimulate the economy. He noted that waiting with economic relief measures would be unhelpful. Tax cuts could support the economy, provided the primary goal is to allow people to keep a greater portion of what they earn permanently. Nevertheless, achieving permanently lower taxes and levies requires a reduction in state spending.
He pointed out that public spending has increased significantly in recent years. In 2019, state expenditures accounted for 45 percent of the gross domestic product; this figure has now risen to 49 percent. He warned that growing defense expenses will continue to inflate public spending in the coming years. If the government intends to lower taxes or, at least, avoid further increases, it must urgently cut other expenditures. However, the federal government should refrain from further increasing the already high tax burden on businesses and investors.
Furthermore, Fuest spoke out against renewing the fuel tax rebate, which expires at the end of June. Instead, he advocated for targeted relief measures for low-income households. He argued that German politics cannot eliminate the burdens associated with higher energy prices; rather, it can only redistribute them. This means increasing the burden for some segments of the population while lessening it for others. If the goal is this redistribution, then low-income households should receive targeted support, ideally through direct payments to this group. Since the fuel rebate tended to benefit higher-income households, Fuest concluded that its expiration was beneficial.