A Mittelstand-friendly tax policy
A diligent reform of inheritance tax still remains a top priority. As BDI President Ulrich Grillo put it, “small levers can have a big impact, particularly for the Mittelstand”. If the draft bill on inheritance tax law is adopted in its current form it will put German corporate culture – which is shaped largely by the Mittelstand – at risk. As it stands, the bill would substantially increase the tax on business transfers. This would make family entrepreneurs and heirs more likely to consider selling their company in whole or in part, or to relocate outside of Germany. Both of these options are certainly not in the interests of the government or German society as a whole. The valuation rules for business assets in the draft bill must be revised. Furthermore, operating assets and all interests abroad must be given preferential treatment as both these factors play a large role in safeguarding jobs – including in Germany. Policymakers must therefore conclude the reform of inheritance tax in a way that does not endanger business succession.
The courage to go digital
Every third mid-sized enterprise already uses digital technologies in its sales and distribution, and every fifth company has digitised its production. Many more will soon be following suit. “One thing is clear – those who do not swim with the tide of digital transformation today will miss out on the market opportunities of tomorrow”, says Hans-Toni Junius, Chairman of the BDI/BDA Mittelstand Committee. Mid-sized enterprises are currently facing the huge challenge of weighing up the opportunities and risks of digitisation. While it has become relatively simple to switch distribution and sales to digital technologies, the successful digitisation of production processes requires time and expertise. It also requires extensive security solutions to protect against the risks of cyber espionage and data theft. Ultimately, however, digitisation and targeted big data analysis allow companies to use their data more effectively, which saves time, cuts costs and increases sales opportunities. The government needs to provide the necessary conditions and the digital infrastructure required to make this transition. This includes a well-developed network of cables and high-speed internet – also outside urban areas. Mittelstand 4.0 holds tremendous opportunities, especially on an international level. To tap this potential we need resolute policies in Germany and in Europe. We need a legal framework that adequately protects data and expertise and last, but not least, training and further education programmes that enable employees to make proficient use of the technologies and applications involved.
Less red tape
When companies do not have to struggle with unnecessary administrative tasks they can focus their energy on tasks that really get things moving. They can drive innovation, make investments, create jobs and provide training. Chancellor Merkel has voiced her support for keeping bureaucracy to a minimum, saying that “the hallmarks of a strong state that is committed to economic growth and jobs are citizen-friendly administration, transparent procedures and a modern regulatory framework.” She followed up her words by initiating a de-bureaucratisation programme. Changes here are long overdue. According to surveys conducted by the SME research institute Institut für Mittelstandsforschung more than three quarters of industrial enterprises think that cutting red tape should be the government’s second highest priority, topped only by the need to maintain the euro. In practice, de-bureaucratisation is all too often merely talked about in the form of vague intentions but with precious little action following suit. The Federal Statistical Office has estimated that the total cost to industry of complying with all current legislation has ballooned from €1 billion in 2012 to €10.5 billion in 2014. These costs must be brought back down to a reasonable level.
Innovation is the key to success. But innovation only happens when there are enough bright minds having good ideas. Germany has a shortage of skilled workers in many fields of work, particularly in nursing, mechanical engineering and electrical engineering. The federal government’s 2014 progress report on its skilled labour initiative revealed that 71 percent of enterprises are finding it “very difficult” to “moderately difficult” to find suitable workers to fill their vacancies. This shortage of skilled labour is increasingly jeopardising the growth of many companies. Securing the availability of skilled labour must therefore be at the top of the political agenda. The government must improve the school education system and create broader access to vocational training. A better compatibility of family and working life could also help improve the situation, as it would allow a greater number of skilled and experienced women to stay in their jobs. The economy cannot afford to waste this potential. The government could also facilitate the influx of foreign skilled workers. All these factors together can secure the supply of skilled labour for industry. The German economy needs bright minds.
Access to suitable financing instruments
The German Mittelstand is an innovative and responsible sector and a powerful exporter. However, it has to be able to invest in order to grow. Investment levels in this sector must rise, and for this to be possible, the necessary financial resources must be available. This includes giving enterprises better access to the European capital market. They will only be able to base their financing on a suitably broad footing if they are able to improve their equity and borrow enough capital through financing methods such as private placements, in which assets are sold outside of the stock markets, securitisation or venture capital. In a nutshell, the Mittelstand can only develop in a long-term and sustainable way if it has a stable and broad capital base. Only then will it be in a position to finance expansion and withstand times of crisis. The European Commission can do much to support this development. Most importantly, it must not introduce excessive financial market regulation that would harm the mid-size sector. Enterprises must be able to place good securitisation on the market – debentures, promissory note loans and other tradable securities – without having to meet excessive regulatory requirements. Lifting the obligation to file stock exchange prospectuses and obtain their approval in every case would make it far easier for Mittelstand enterprises to access the capital market. The European Commission is currently reviewing whether to change the prospectus regulation in this respect. The harmonisation of corporate and insolvency law across Europe would be another step in the right direction. Furthermore, to prevent start-ups from failing even before they reach the market we need to facilitate their access to venture capital. The main bottleneck facing entrepreneurs is securing enough venture capital from investors. Failing to do so has already destroyed many a good business idea.
Entrepreneurial spirit and young business leaders
The vitality of the Mittelstand depends on having enough young talent to continuously reinvent it. The economy certainly needs people who are willing to take on the responsibility of running a business and lead established enterprises into the future, but it also needs the enthusiasm and pioneering spirit of young people who want to implement their own new ideas, whether in the form of innovative products or innovative business models. We need people who are prepared to take the risk of setting up their own company. Schools can help here, as both the BDI and the German Confederation of Skilled Crafts, the ZDH, have underlined. As ZDH President Hans Peter Wollseifer says: “Schools and universities must vigorously inform their students about the opportunities and challenges of going into business. In future, student advisory services should include career guidance as well.” School students must be actively encouraged to go into vocational training. After all, many of those who opt for a corporate career today will be driving industry as a business leader and entrepreneur in the future.
Tax benefits for research
For many businesses, the secret of success is innovation. German mid-sized companies work on innovation day in day out, but it is a time-consuming and highly cost-intensive process. We need to increase investments in research if German enterprises are to maintain their top positions on an international level. Directly promoting research on specific topics through established funding instruments is certainly an important part of the equation. But beyond this, we also need an instrument that is designed to promote research and innovation in a broad and open way. In industry, this should take the form of tax incentives for research. All large and the majority of small OECD countries have such incentives – only Germany doesn’t. It is high time that tax incentives for research are introduced in this country too. Only then can the Mittelstand grow more strongly and with it the German economy.