Abundantly Flowing Tax Revenues, Huge Challenges – Expectations for Sustainable Taxation and Fiscal Policies

Taxation and fiscal policy are two areas in which a state can successfully fulfil its obligations. How will taxation and fiscal policy be shaped in the coming years? Where are the problems? Where do academics, the manual trades and politicians see the need for action? To shed light on these questions and to derive some answers, the Bavarian Manual Trade Association and the ifo Institute organised a symposium on 6 March 2018 entitled “Abundantly Flowing Tax Revenues, Huge Challenges – Expectations for Sustainable Tax and Financial Policies”. The President of the association, Franz Xaver Peteranderl, pointed out in his introduction that tax policy has a significant impact on competition and influences both investment decisions and competition between different types of companies. In general, it is necessary to continuously review the complex tax system. Unfortunately, the new governing coalition’s proposals on tax policy have so far been anything but ambitious. ifo-President Clemens Fuest dealt critically with the tax policy projects of the CDU/CSU and SPD coalition. He focused his remarks on the need for reform in the areas of income taxation, corporate taxation and asset-based taxation. With regard to income taxation, policy-makers should use tax relief to reduce the bulge in the medium income-tax brackets. In the area of corporate taxation, measures are needed to improve Germany’s position in international tax competition. As far as asset-based taxes are concerned, there is a need for reform in property taxes, land transfer taxes and inheritance tax. Franz Josef Pschierer, State Secretary in the Bavarian State Ministry for Economic Affairs and Media, Energy and Technology, emphasised that the German economy is currently developing very positively. Nevertheless, Germany must act to safeguard its competitiveness. Tax competition has been stepped up internationally, and the coalition agreement lacks a commitment to bold tax relief. Deborah Schanz, Director of the Institute for Business Taxation at the Ludwig-Maximilian University of Munich, expressed doubts as to whether a balanced budget can be maintained, since the coalition agreement is full of tax gifts and massive investment promises. Also, a much-needed reform of the trade and business tax is not addressed and international tax competition is virtually ignored. In the ensuing podium discussion moderated by Steffen Range, Editor-in-Chief of the Deutsche Handwerks-Zeitung, the speakers gave further assessments of the coalition’s fiscal policy plans. Overall, the speakers found the tax plans disappointing; they are more a patchwork, and lack an underlying vision. Their conclusion: The German tax system is too complicated, the bureaucracy too large and the tax administration too antiquated. The contributions presented at the symposium are published in this issue of ifo Schnelldienst.