A.The federal government is reacting to the worries and anger of entrepreneurs in the Corona crisis with new aid programs. Finance Minister Olaf Scholz (SPD) wants all companies affected by the Corona restrictions to replace large parts of their lost sales in the coming month. “If the restrictions are extended, it is clear to me that the financial support of the directly affected industries will then also continue to be necessary,” said the Vice Chancellor and SPD candidate for Chancellor of “Bild am Sonntag”.
The Prime Ministers and the Chancellor will decide this at their meeting on Wednesday. After the November aid, the December aid should now come. The government wants to use new forms of compensation to prevent legal action against the corona measures – or at least to prevent them from being dismissed by the courts, as the existence of the affected companies is not threatened thanks to the aid.
For this, the government also accepts a dispute with the European Commission. The further reimbursement of 75 percent of the previous year’s sales “would be a financial challenge and complicated under European law,” said Scholz. Brussels already approved the November aid with grumbling, considering the orientation towards sales to be too generous. After all, many costs are also eliminated when the company is closed.
One thing is already clear: the patchwork of aid measures that has already emerged in the past few months continues to grow and is becoming more and more expensive for taxpayers. Economic researchers are now pushing for a standardization of the many different aid programs – which would not only increase the overview for all those affected, but in the best case would even be cheaper.
Some aids even lead to false incentives
At first it was the emergency aid and the significantly expanded basic security, then came the bridging aid, then the November aid, now the December aid. In addition, restart assistance for freelance artists and other self-employed soloists has already been announced. Sometimes the amount is based on the running costs, sometimes large parts of the previous year’s sales are replaced, sometimes there is a flat-rate compensation.
It’s not just difficult to keep track of things. Individual instruments also contradict each other. For example, the short-time work allowance is offset against the November benefit. That means: For a company it can make economic sense to lay off workers instead of sending them on short-time work.
The staggering of the aid after a loss of turnover for the bridging allowance can in turn mean that there is no incentive for a company in the crisis to even try to do business and to keep the decline in turnover as low as possible. Then there is ultimately less government aid.
“One instrument counteracts the other,” says Gabriel Felbermayr, President of the Kiel Institute for the World Economy (IfW). He calls for an instrument that can be used in the next major crisis regardless of industries, size classes and specific damage.
Kiel economists want to fix compensation to the industry average
Together with his IfW colleague Stefan Kooths, he advocates a system that is based on operating profit. From the point of view of the scientists, neither cost nor sales reimbursements are suitable for bringing the companies affected by the Corona crisis through the difficult times in a regulatory and politically effective manner.
If they have their way, bureaucratic proof that each individual company is affected is no longer necessary in the future. The average losses in the respective industry should be relevant. In this way, market forces would not be switched off even in the crisis, because companies that were already doing worse than their competitors before the crisis still 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 drop in earnings of 60 percent this year, each company would be granted 51 percent of the previous year’s earnings as a grant – 60 percent times 0.85. In the event of a decrease in earnings of 80 percent, the grant would be 68 percent.
The IfW experts have already calculated what such a concept would have cost the state this year. From the figures for 2019 and the economic forecast of the leading economic research institutes for 2020, Germany’s companies – from large corporations to self-employed persons – come to a loss of earnings of 88 billion euros this year. “With a replacement rate of 85 percent, this results in fiscal costs of almost 75 billion euros,” says Felbermayr. Short-time work benefits are added.
The self-employed were particularly hard hit
“Our proposal does not go beyond the budget,” the IfW President is convinced. All other measures from the aid and economic stimulus programs could have been saved, including state holdings in companies.
Felbermayr estimates the current state subsidies for this year at only 55 billion euros, which is significantly less than his 75 billion euros. “But because our system does not have any negative incentive effects and is fairer and does not discriminate against equity and debt, the economic advantages are greater than with the current mix of instruments,” says Felbermayr.
In addition to a single rescue package for everyone, simpler solutions for certain groups are also conceivable. Alexander Kritos, head of the Entrepreneurship research group at the German Institute for Economic Research (DIW), has a particular focus on the self-employed. Many of the 2.2 million self-employed people were particularly hard hit by the crisis. Photographers, coaches and event technicians sometimes had no jobs at all.
Kritos estimates that a good 20 percent of them still have a drop in sales of more than 50 percent. In order to get a more precise picture, the DIW is currently conducting a survey.
Some resisted Hartz IV
Displeasure with state aid was particularly great among the self-employed. Because to secure the livelihood, the federal government issued the basic security, i.e. Hartz IV, as a solution from the beginning. Although the system was designed much more generously for this than in normal times, according to the Federal Employment Agency, only around 75,000 self-employed received additional basic income from April to October.
Some resisted because they found the system to be unreasonable. Others had no access because their savings or their partner’s income was too high. The new start aid should now counteract the anger, after all, there should be a flat rate for the first time for solo self-employed people, which can also be used for livelihood. It often does not cover the full requirement, but is granted in addition to Hartz IV.
From Kritos’ point of view, these double structures make little sense. “Instead of the confusing coexistence of November, bridging, restart aid and Hartz IV, a uniform model that supports all self-employed depending on the severity of their affliction as a result of the Covid 19 crisis would be better,” he says.
Help should be given to those who had to accept a drop in sales of more than 50 percent compared to the average of the last twelve months. 80 percent of these losses should be reimbursed for them. For many self-employed people, the turnover comes very close to the profit, as they hardly have any running costs.
Kritos has in mind that the tax offices will grant the aid. After all, they would have a precise overview of the income situation in recent years anyway. This would rule out cases of removal and fraud, as well as overpayment of emergency aid. As a role model, Kritos names Great Britain, where this is already done.