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German solidarity

Posted by Mad Mitch on  UTC 2019-08-29 17:22

In 1991 the Federal Government of Germany decided it was in need of money. All governments are in need of money all the time, but at this moment the need was pressing: despite being a non-participant in the Second Gulf War, Germany had agreed to pay a proportion of the costs of fighting it; furthermore, the country was simultaneously faced with the costs of integrating the newly acquired and catastrophically backward states of East Germany into the affluent West.

The government of the time did not have the political courage to raise taxes – many pacifist citizens wondered why they were paying for other countries' foreign wars; not a few muttered their dissent at throwing money at the new Germans in the east; after half a century of Wirtschaftswunder and spectacular increases in prosperity all this well-being was now going to have to be shared out with people with crooked teeth who had never eaten a banana.

The government therefore invented some new language, a thing it called a 'solidarity charge', a fixed percentage of income or corporation tax that would be added to both personal and corporate tax bills. It all sounded so worthy and humane.

The money from the charge would go straight to the Federal Government, bypassing the communities and states. It was not hypothecated – that is, it went into the general pot and could be spent on anything. It was calculated as a percentage of the tax paid and would be 'provisional'. Everyone was clear on that point: we may grumble, but it won't be for long.

Simple people!

As taxes always do, the solidarity charge crept up on the Germans: 3.75% in 1991 and 1992; then none in 1993-94; then 7.5% in 1995-1997; then 1998 at 5.5%, where this provisional tax has remained since then, redefining the word 'provisional'.

Now, 28 years later, the Second Gulf War is scarcely remembered, its costs long since covered; the former states of East Germany are no longer complete basket cases (although one can still speak of two Germanys). Time to end the collection of this 'provisional solidarity charge', you would have thought.

Simple person!

The charge currently brings in around 19 billion EUR directly to the Federal Government, which, as noted, can do with it what it will. The constitution of Germany was carefully constructed to balance the powers of the federal government and the individual states. This new money flowing into the federal government has affected this delicate balance, since it permits the government to bribe both states and individual citizens from its deep pockets.

This income has been a major element in financing the Energiewende, the 'energy transition', which is still running on massive subsidies from the government. Whatever hasn't been spent on green daydreams has been diverted to bloating the welfare state, which is currently having to provide for a large migrant population which is proving slightly more difficult to integrate than the poor old banana-starved Ossis from the east.

While all this solidarity has been in the air, much of the once so envied German infrastructure, particularly roads and railways, has been falling into decrepitude. These services have now become a German joke, certainly no laughing matter for rail travellers in particular.

Even in the fat years of the last decade, when a weak Euro allowed Germany's export economy to flourish, an extra 100 billion EUR flowed into the economy. Money was thrown at the sexy green and social projects, but no roofs were fixed. Now that the Germany economy is shrinking and the rain drops are starting to patter on the dining table, that 19 billion EUR, important before, has now become critical for the money junkies in the government.

The German bird's-nest was once full of tradesmen and industrial workers earning good steady wages and paying reasonable taxes. It is now full of squawking subsidy cuckoos with ever-gaping beaks: environment, welfare, infrastructure projects.

Particularly in respect of the latter, the Germans were once a nation of project managers, now they are a nation of project objectors who have learned to take maximum advantage of the encrusted German legal system to hold things up. In Germany nowadays everyone is grumbling and discontented about something or other. The disaster of the new, unused and unusable Berlin Brandenburg airport is just the most embarrassing example of the depths to which German project skills have sunk – four times over budget, riddled with major defects and still, years after its supposed completion, unusable for the foreseeable future.

To keep her little chicks in worms, Chancellor Merkel, schooled in East German ways of governance, wanted just to keep the solidarity charge going. The constitutional propriety of doing this is far from clear. There are however, still one or two politicians with a sense of shame in her party, the CDU – once, with the FDP, the party of fiscal rectitude – and they managed to force some form of compromise.

The current Finance Minister in the coalition, Olaf Scholz (SPD), has been a deep red socialist throughout his long political career. Now in charge of the finances of the German Republic he is the fox currently in charge of the chicken coop. Refraining from extracting money from the taxpayer, let alone giving it back, is not in his political DNA. Nevertheless, some gesture was politically and legally necessary, so Scholz has turned the solidarity charge into a tax on the rich.

FoS image, size 708x399

Olaf Scholz (second from right) in a cabinet meeting on 31 July 2019, which agreed to throw more money at subsidising electric vehicles. Image: Bundesministerium der Finanzen.

At the moment anyone earning more than about 15,000 EUR a year is paying the charge. In future the charge will kick in around 74,000 EUR. Those with an income of around 90,000 EUR or more are back where they were. This means that nine out of ten Germans will no longer pay the solidarity charge. The government will have to muddle along with 9 billion instead of 19 billion EUR.

This is a 'first step' according to Scholz, a statement which simpletons take to mean that the solidarity charge will be reduced further at some future date; experienced cynics take this to mean that now Scholz has extracted the low to middle earners from the solidarity charge, the percentage can be raised at any time.

The one tenth of Germans who will continue to be hit with the solidarity charge, however, don't represent many votes. They are an easy target in comparison to the number of people and organizations which currently rely on subsidies, a number which is so high that cutting back on it, which would save about as much money as the solidarity charge brings in, is politically unthinkable – certainly by this red-green government.

Scholz's change is a double whammy: what future government will ever remove it only to benefit the rich? The proof of this is supplied by the main argument fielded against the abolition of the solidarity charge – that its removal would be effectively a tax break for the rich.

The provisional has at a stroke become the permanent.

Why are we weeping for rich Germans? the reader asks. We aren't. But the heady days of German economic progress and well-being were built on a shared understanding of the social balancing act that was needed to maintain 'social peace'. Germans looked at the class warfare in Britain between the sixties and the eighties and considered themselves blessed that they were on the right track.

German managers would grumble at the occasional bloody mindedness of the obligatory 'works council', but realise in their heart of hearts that the system was working. Even terrorism did not shake that belief. Everything seemed to be working well, which meant that the well-off and the less well-off tolerated each other.

The educational escalator worked well in those days, too. Anyone with brains and application could make progress and better themselves; even the conscripts in the armed forces were offered valuable training – people could use their time in the forces to learn touch typing, languages, bookkeeping, truck-driving etc.

Modern Germany, wrote one Swiss observer recently, seems to have become a very fragile construct, ready to fall apart over the slightest thing. The consequence is that opinions and feelings are so fragmented – and violently fragmented at that – that speaking of 'social peace' these days would be taken as a form of mockery.

What has happened to the solidarity charge is a symptom of a wider malaise. A confident government would have abolished it and realigned its budget to cope. The charge was a pact with the people for a provisional imposition. Instead of this, the present politically sectarian coalition is pursuing a course which sets class against class and which will only make the current fragility even more brittle.