In May 2017, the European Commission published its country-specific recommendations which were approved by the European Council at the end of June 2017. A recommendation for Germany is that the country should further strengthen the moderate upward trend in investments. In particular in the area of public investments in education, research and innovation, there is potential at all federal levels. Similarly, the federal government should counter capacity and planning bottlenecks in infrastructure investments, and organise the tax system in a more investment- and therefore growth-friendly way. Lastly, disincentives which hold back second earners from taking a job should be reduced in order to strengthen labour market potential.
Research and innovation are key elements for Germany
BDI and BDA welcome these recommendations for action and specify them in even greater detail. In the recently published growth and investment Programme ( in German ), industry proposes comprehensive measures to increase investments, innovation and prosperity. Research and development expenditure should be given tax breaks, as it is in almost all other EU Member States. An objective of 3.5 percent of gross domestic product for research would be an ambitious but realistic goal for strengthening Germany’s innovation capacity.
Germany needs a strong labour market and high productivity growth
In addition, BDI and BDA support the European Commission’s call for better exploitation of labour market potential. In particular, development of the all-day childcare offer is of decisive importance for higher female participation in the workforce. In order to counter the negative consequences of retirement at 63 and to limit skills shortages, retirement at 63 should be phased out as rapidly as possible. At the same time, incentives to increase the employment of older workers need to be strengthened. Employers set out encouragements and pointers for addressing these challenges successfully in a recent brochure ( in German ).
With regard to the increase in real wages advocated by the European Commission, business associations BDI and BDA point out that unit labour costs are already rising strongly on an EU comparison. Adjustments to real wages should therefore not be made in isolation from productivity improvements since the competitiveness of German companies could otherwise be jeopardised. There are plenty of ways to improve productivity, as highlighted by a BDI study.
Complicated tax system holds back investments
Alongside investments in research and innovation, investments in infrastructure are of great importance. The two leading German business associations see considerable opportunities in investments in “Industry 4.0” as well as in investments in digital, energy and transport networks. Public authorities must become more active in these infrastructures. Whereas the German federal government has increased public investments by around 6% in recent years, the level of 2.2 percent of GDP is still below the 2.8 percent average of the other Euro countries.
Lastly, the German tax system is complicated and holds back investments. In this area, for instance, employers and industry are in favour of business tax (“Gewerbesteuer”) being integrated in corporation tax (“Körperschaftsteuer”) in order to streamline tax bureaucracy in a revenue-neutral way. After the approval of the recommendations by the Council, the ball is now in the court of national governments. Germany has made only limited progress with implementation of last year’s recommendations. BDI and BDA reported extensively on the country reports in question.