Thanks to state aid, the pandemic is ringing the boxes

JAnyone who has wanted to reserve a table for Christmas knows that there is a great rush, restaurants have been full for months. “Christmas is an important time for restaurateurs: they love to be there for the regular guests and they have many rituals with them,” says Ingrid Hartges, general director of the German Association of Hotels and Restaurants Dehoga. And, of course, companies made a lot of sales during this time.

However, according to a recent survey by Dehoga, 90 percent of companies would prefer not to entertain guests during the holidays, even if they are allowed. The reason is that it is not worth opening it for four or five days. Many companies can easily bear the consequences financially. Thanks to state aid, they earn more when they are closed than when they open on short notice.

The Cologne Institute of German Economics (IW) calculated for WELT AM SONNTAG that the state should pay ten billion euros more in aid in November and December than would be necessary to support industries affected by the Crown restrictions. That would be equivalent to almost one in three euros of the total aid of some 30 billion euros.

As in November, businesses particularly affected, such as restaurants and cafes, will now be replaced in December with 75 percent of their turnover in the same month last year.

The same applies to companies and freelancers who regularly generate 80 percent of their sales through contracts from currently closed companies, such as cultural workers and event managers. Politicians clearly did not pay much attention to the possible injustices of the general approach.

Many have more money than in normal times

These result from the fact that a large part of the costs of companies and the self-employed are not fixed, but variable. Many expenses are avoided when the business is closed or has no orders. If costs drop more than the income proxy, which is only 25 percent lower thanks to government help, you end up with more money than normal times.

IW economist Tobias Hentze considers that on average half of the costs of the affected companies are variable. To do this, it relies on data from the Bundesbank, according to which about a third of spending in the affected industries is on materials, in restaurants, for example, the purchase of groceries. Since these costs are currently hardly incurred, according to Hentze they would not have to be reimbursed.

Furthermore, the economist assumes that a good quarter of personnel costs will be eliminated. This is also due to the fact that many companies have continued to register part-time jobs. Furthermore, companies in the affected sectors tended to employ few or no permanent employees. Instead, they mainly use mini-workers.

Hentze uses an example to illustrate the poor distribution it can cause: In November 2019, an events manager commissioned a caterer to provide food for a trade show.

The catering company draws up an invoice of 50,000 euros for it. Its costs are also 45,000 euros. Of this, 15,000 euros are set, for example for permanent staff and current office income. 30,000 euros are variable.

They represent the purchase of groceries, transportation and the employment of temporary workers. This left the caterer with a pre-tax profit of 5,000 euros the previous year.

This year, thanks to government aid and cost reduction, it is 22,500 euros, although the fair was never held, that is, 75 percent of last year’s turnover of 50,000 euros, that is, 37,500 euros, less 15,000 euros of fixed costs.

High fixed costs for cinema operators and fitness studios

The event manager can also benefit from the failure of the fair. You have included your catering expenses in the calculation, which forms the basis of the invoice to the fair operator.

The catering turnover is part of your turnover and is practically reimbursed for the second time. Since the organizer does not have to pay the supplier, their costs are reduced.

With sales in the same month last year of 150,000 euros and fixed costs of 40,000 euros this year, this would result in a profit of 72,500 euros, that is, 75 percent of sales in the same month last year. minus fixed costs.

If the fair had taken place, it would have been only 15,000 euros, as it was last year. Then it would have had variable costs of 95,000 euros.

These examples can continue on any number of links in a chain. There are also counterexamples. Economist Hentze points out that companies with very high fixed costs end up in the red, even if the state reimburses them for 75 percent of their turnover.

As examples, he cites movie theater operators and fitness studios, where a large part of spending is primarily due to rent. “Comprehensive solutions cannot produce individual justice,” says Hentze.

Hartges de Dehoga considers it “correct and consistent that economic losses are offset.” The existential fears are great after a total of four and a half months of closure, there are hardly any reserves.

Bernd Fritzges, executive director of the Association of Event Organizers, fears that not all companies will benefit from the support, as some service providers would organize celebrations on behalf of companies that are not directly affected by Corona. Then he would not get any help, although these events would not take place because of Corona.

“No criterion brings absolute justice”

Economy Minister Peter Altmaier (CDU) is aware of possible injustices, but defends the programs. “Of course, the focus on sales is not one hundred percent fair, but no criteria can guarantee absolute fairness in each individual case,” he told WELT AM SONNTAG.

But it suggests that affected industries cannot count on this kind of help beyond December. “This in no way justifies a new automatic. We will have to think about what to do when we need extensive and broad restrictions, ”he says.

The opposition becomes clearer. “We need help from the Crown that also works fairly in the long term and deals with taxpayers’ money responsibly,” says Claudia Müller, Commissioner for SMEs for the Greens in the Bundestag. It cannot be that some receive too much and others too little, such as the self-employed or retail.

Christian Dürr, vice chairman of the FDP parliamentary group, believes that permanent tax relief rather than full sales tax offset is a much better strategy. The leader of the left-wing parliamentary group, Dietmar Bartsch, also calls on the federal government to make corrections: “If there is evidence of overcompensation, it must be corrected.”

The alternatives have long been debated among economists. To prevent support measures from spiraling out of control, the state must focus on reimbursing costs and securing an income for the self-employed, says Marcel Fratzscher, president of the German Institute for Economic Research (DIW).

Clemens Fuest, president of the Munich Ifo Institute, suggests a combination of benefits and operating costs as the basis for the assessment. At the Institute for World Economy (IfW) you want to deduct variable costs from billing. This would prevent a business from being more worth doing than a bad business.

This text is from WELT AM SONNTAG. We will be happy to take them home periodically.