Government offload during COVID-19 crisis not excessive, according to Fratzscher's statement
The German Institute for Economic Research (DIW) has proposed several measures to support the economy, particularly small and medium-sized enterprises and self-employed individuals, during the ongoing corona crisis.
Marcel Fratzscher, the president of the DIW, has stated that the state can only alleviate economic pain, not stop it. He has urged the government to relieve families and people with low incomes, especially those in the self-employed and mini-jobber sectors.
One of the key proposals from the DIW is the use of savings from the reduced value-added tax (VAT) to target support where it is most needed. Currently, the VAT has been reduced from 19% to 16% and the reduced tax rate from 7% to 5% until the end of the year. However, the DIW president has advised against extending the VAT reduction beyond the end of the year.
The DIW president has not expressed a preference for permanently reducing the VAT. Instead, he has suggested providing bridging aid to small and medium-sized enterprises and self-employed individuals. He has also advocated for a stronger loss carryback in taxes to further support these sectors.
Interestingly, the Association of Medium-Sized Enterprises is advocating for a permanent reduction in the VAT. On the other hand, Marcel Fratzscher opposes this preferential treatment for the gastronomy sector, arguing that given Germany’s financial situation, the gastronomy sector should not benefit permanently while other sectors do not. He suggests ending this special VAT treatment and instead implies other reforms should be considered.
The DIW president's concerns are rooted in the need to avoid overburdening the state during the corona crisis. He warns against the potential long-term consequences of excessive financial support, emphasising the importance of targeted aid.
In conclusion, the German Institute for Economic Research (DIW) is urging the government to provide targeted support to the most affected sectors of the economy, particularly small and medium-sized enterprises and self-employed individuals. The DIW also suggests using the savings from the reduced VAT wisely and avoiding permanent VAT reductions for specific sectors.
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