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AThe Federal Government is reacting to business concerns and anger about the Crown crisis with new aid programs. Finance Minister Olaf Scholz (SPD) wants all companies affected by the Corona restrictions to replace much of their lost sales in the next month. “If the restrictions are extended, it is clear to me that financial support from the sectors directly affected will also continue to be necessary,” said the vice chancellor and SPD candidate for chancellor of “Bild am Sonntag”.
The Prime Minister and the Chancellor will decide this at their meeting on Wednesday. After November aid, December aid should arrive. With new forms of compensation, the government wants to prevent legal action against the crown measures, or at least prevent them from being dismissed by the courts, since the existence of the affected companies is not threatened thanks to the aid.
Therefore, the government also accepts a dispute with the European Commission. The additional reimbursement of 75 percent of the prior year’s sales “would be a complicated and financial challenge under European law,” Scholz said. Brussels has already approved November’s aid with complaints, considering the sales orientation too generous. After all, many costs are also eliminated when the business is closed.
One thing is already clear: the patchwork of aid measures that has already emerged in recent months continues to grow and is becoming increasingly expensive for taxpayers. Economic researchers are now pushing for a standardization of the many different aid programs, which would not only increase the overall picture for everyone affected, but would be even cheaper at best.
Some grants even give rise to false incentives
At first it was emergency aid and basic security significantly expanded, then came bridging aid, then November aid, now December aid. Additionally, reboot support for independent artists and other freelance soloists has already been announced. Sometimes the amount is based on running costs, sometimes large parts of the previous year’s sales are replaced, sometimes there is flat rate compensation.
It’s not just hard to keep track of things. The individual instruments also contradict each other. For example, the reduced-time work allowance is offset by the November benefit. That means: for a company, it may make economic sense to lay off workers rather than send them off to work on reduced time.
Staggering aid after a loss of turnover in the bridging allocation may, in turn, mean that there is no incentive for a firm in difficulty to even try to do business and keep the decline in turnover as low as possible. possible. Then, ultimately, there is less government aid.
“One instrument counteracts the other,” says Gabriel Felbermayr, president of the Kiel Institute for the World Economy (IfW). He asks for an instrument that can be used in the next big crisis regardless of industries, size classes and specific damages.
Kiel economists want to set compensation to the industry average
Together with his IfW colleague, Stefan Kooths, he advocates for a system that is based on operating profit. From the scientists’ point of view, neither cost reimbursements nor sales reimbursements are adequate for companies affected by the Crown crisis to go through difficult times in a regulatory and political and effective way in terms of stability.
If they have their way, the bureaucratic proof that each individual company is affected will no longer be necessary in the future. Average losses in the respective industry must be relevant. In this way, market forces would not be turned off even in the crisis, because companies that performed worse than their competitors before the crisis only receive compensation equal to the industry average.
The Kielers call this a load balancing mechanism. They propose a uniform replacement rate of 85 percent. For example, if an industry suffers a 60 percent drop in profits this year, each company would be awarded 51 percent of the previous year’s profit as a grant: 60 percent times 0.85. In the event of an 80 percent decrease in income, the subsidy would be 68 percent.
IfW experts have already calculated what such a concept would have cost the state this year. Based on the 2019 figures and the economic forecasts of the leading economic research institutes for 2020, German companies, from large corporations to the self-employed, report a revenue loss of 88 billion euros this year. “With a replacement rate of 85 percent, this translates to fiscal costs of almost 75 billion euros,” says Felbermayr. Reduced-time work benefits are added.
Especially the freelancers hit hard
“Our proposal does not go beyond the budget”, is convinced the president of IfW. All the other measures of the economic aid and stimulus programs could have been saved, including state holdings in companies.
Felbermayr estimates the current state subsidies for this year at just 55 billion euros, which is significantly less than his 75 billion euros. “But because our system has no negative incentive effects and is fairer and does not discriminate against equity and debt, the economic benefits are greater than with the current instrument mix,” says Felbermayr.
In addition to a single rescue package for all, simpler solutions can also be devised for certain groups. Alexander Kritos, director of the research group on entrepreneurship at the German Institute for Economic Research (DIW), has a particular focus on the self-employed. Many of the 2.2 million self-employed were especially affected by the crisis. Photographers, trainers, and event technicians sometimes had no jobs.
Kritos estimates that a good 20 percent of them still have a drop in sales of more than 50 percent. To get a more accurate picture, DIW is conducting a survey.
Some resisted Hartz IV
Discontent with state aid was especially great among the self-employed. Because to ensure sustenance, the federal government issued the basic security, that is, Hartz IV, as a solution from the beginning. Although the system was designed to be much more generous than in normal times, according to the Federal Employment Agency, only about 75,000 freelancers received additional basic income from April to October.
Some resisted because they found the system unreasonable. Others did not have access because their savings or their partner’s income was too high. The new help to start now should counteract anger; after all, there should be a flat rate for the first time for the lone self-employed, which can also be used for living. Often it does not cover the full requirement, but is awarded in addition to Hartz IV.
From Kritos’s point of view, these double structures make little sense. “Instead of the confusing coexistence of November, Bridge, Aid Restart and Hartz IV, a uniform model that supports all self-employed based on the severity of their affliction as a result of the Covid 19 crisis would be better,” he says .
Those who had to accept a drop in sales of more than 50 percent compared to the average of the last twelve months should be helped. They must be reimbursed 80 percent of these losses. For many freelancers, billing is very close to profit, as they have very little running costs.
The critic takes into account that the tax offices will grant the aid. After all, they would still have an accurate description of the income situation in recent years. This would rule out removal and fraud cases, as well as overpaying for emergency assistance. As a role model, Kritos names Great Britain, where this is already done.
