The Social Market Economy Today: Stimulating Growth and Cohesion

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To promote economic stability and growth; the federal government – through its 2014 annual economic report to the German Bundestag and the Bundesrat – provides a benchmark data for the overall orientation of the economy in 2014.

The Federal Government presents central priority fields of economic and fiscal policy. As stipulated by the Act to Promote Economic Stability and Growth, the government`s projection of overall economic trends in 2014 is discussed as well. The Federal Government discussed its economic and fiscal strategy with the Länder and municipalities within the framework of the Konjunkturrat fὓr die ὄffentliche Hand (a government economic advisory council). This strategy was also discussed with union representatives as well as with the Gemeinschaftsausschuss der Deutschen Gewerblichen Wirtschaft (a joint committee that serves as a coordinating body for German business associations).

Prosperity, social cohesion and high quality life in Germany will be developed as the basic foundations by the Federal Government; together with the aims to investment looking on innovation and research, efficient infrastructure, the integration of labour and – not least – on continuing internationalisation of the German economy.

Projected in 2013 as gross domestic product (GDP) expanded by 0,4% and followed by a period of weakness due to poor weather in the 2012/13 winter semester the German economy has shifted to a stable path of recovery. For 2014, it is assumed that GDP will record an annualised increase of 1,8%. In arithmetical terms, growth this year will be driven solely by domestic forces. A crucial role for this domestic economic dynamism will be played by the good development of the labour market, which is on course for another record level of employment. The level of gainful activity is expected to rise this year by 240,000 people to 42,1 million. The favourable growth and profit outlook for companies will allow employment and wages to rise. This will result in appreciable increases in private households income that influence more on consumption and house-building; to the extent that no serious disruption occurs in the international environment.

Macro Economy, Tax & Labour Market

Macroeconomic productivity and corporate profits are likely to improve this year in the course of upswing. There are no expectations of inflationary tensions. Unit wage costs will record a moderate increase. Since the turn of the millenium, Germany`s economy has developed well, but continues to face major challenges. The Federal Government wants to take advantage of the present good economic situation in order to strengthen the foundations for prosperity and participation of people in Germany and Europe on the basis of a Social Market Economy characterised by dialogue, co-operation and trusting social partnership. In further, there is an aim to foster and develop the level of acceptance in society of German industry.

As guided by clear budgetary principles, the consolidations of federal budget will shape revenues and expenditure in such a way that the budget is structurally balanced this year and avoid net new borrowing from next year on. In this way, major contribution towards the planned reduction in overall national debt rate to below 70% of GDP by the end of 2017 and to below 60% of GDP within 10 years are being on progress.

Tax simplification is a step by step process and technical possibilities offered by modern data processing are applied. To the field of corporate taxation, specific aspects of tax law is being developed (taking account as it does so for SMEs) and the inheritance tax, which will be continued by the Federal Government, should not imperil the hand-over of companies to the next generation in future either.

Germany has made substantial progress on the labour market. Long-term unemployment has fallen, and the number of employees subject to social security contributions has risen tangibly. This good development – particularly in the international comparison – in employment in Germany underlines the significance of an open and functioning labour market, a strong social partnership and free collective bargaining as fundamental pillars of the Social Market Economy. Adaptation to the policy environment in ensuring secured and proper work with fair pay, as well as strong social partnership between employers and trade unions is duely implemented. €8,50 as binding statutory gross minimum wage per hour is intended to be appropriate level of minimum protection throughout Germany.

Another major task of today is to cover the demand for skilled workers, while better earnings opportunities should be considered as well. First focus is on people in Germany to advance their degree of integration into the labour market, in which the social partners and Länder aim to create an alliance for initial and further training. Here, at the same time, advantage in attracting global skilled workers should be taken to invite them coming and working in Germany. In further, the Federal Government wishes to work in partnership with business community to improve equal opportunities for men and women in companies – it is hoped to have an increased proportion of women in managerial positions. Besides that, principle of “equal pay for equal and equivalent work” is to be promoted.

Social Security, SMEs & Infrastructure

The social security systems should be reliable for people, so more actions as the reflection of lifetime performance and many years of paying in contributions to the pension fund; that it is giving employees with a long working life behind them the opportunity to retire without loss of pension after 45 years of paying onto the contributions. Not to forget, the Federal Government aims to appreciably improve the pension entitlements of disabled people unable to do a full day`s work.

Moreover, as stipulated in law, contribution towards statutory health insurance is financed by both employers and employees equally at 14,6% – with future imposing the fund-specific additional contribution by including the existing one of 0,9%, as a percentage of the assessable income. Nevertheless, the contribution rate to long-term care insurance is also paid equally by employers and employees and will be increased by 0,3 percentage points as of 1 January 2015 at the latest. A new provident fund (Vorsorgefonds) is to strengthen the sustainability of the long-term care insurance system. In a second step, the implementation of a new, expanded concept of people in need of care will raise the contribution by a further 0,2 percentage points.

Germany`s strengths lie in an internationally competitive economy dominated by small and medium-sized enterprises with a modern, dynamic industrial sector at its core. Germany will engage constructively in the European debate on an increased liberalisation of the internal market for services.

The Federal Government also supports the concept of an integrated  DB AG group and will regulate the railways in a proportionate manner in order to ensure transparency and non-discriminatory market access.

On the infrastructure, there will be more investment, actions to improve the conditions for a future`s digital infrastructure and further strengthened innovative dynamism is to be taken. A total of €5 billion of additional money is to be provided for urgently needed investment in public transport infrastructure over the next four years, there would be development of the truck toll on the maintenance and expansion for the federal trunk road network and also there are plans to levy an appropriate charge on the owners of cars not registered in Germany (the “vignette”).

“Rising imports and increasing foreign investment by German firms will foster Europe`s economic recovery”

Investment, Digital Preparedness & Energy Reforms

The Federal Government aims to keep investment in research constant at 3% of GDP. It will continue to develop the High-Tech Strategy into a comprehensive, interdepartmental innovation strategy for Germany. The Strategy will cover both technological and societal innovations. The aim is to move the findings from all fields of research into applications.

Adoption to a comprehensive Digital Agenda 2014-2017 will be implemented together with the business community, the parties to collective bargaining, civil society and the academic community. The aim is particularly to extend the digital infrastructures, to accelerate the development of forward-looking digital technologies, and to support the digitisation of traditional industry (“industry 4,0”). The topics of IT security and the prevention of industrial espionage, as well as the question of adapting criminal law to the digital age, will also play a particular role. The platform for this digitisation will be efficient broadband networks. For example – and using all available technologies – there is to be nationwide coverage of at least 50 Mbit/s by 2018.

The Federal Government will continue to roll out the energy reforms. Here, it will be guided by the “energy policy triangle” of the equally important aims of climate and environmental compatibility, security of supply and affordability.

The Federal Government is in favour of a sustainable, continuous and affordable expansion, coupled with further market and systems integration, of renewable energy. By Easter 2014, it will present a proposal for a fundamental reform of the Renewable Energy Sources Act which will interrupt the existing cost dynamics of the Act and thereby limit the rise in electricity costs for electricity consumers. In order to safeguard the international competitiveness of German industry, the Federal Government will retain the special compensation arrangement. It will review this on the basis of objective and transparent criteria and develop it further in conformity with European law.

The grid reserve is to be developed further in the next few years. In the medium term, the Federal Government will develop a competitive and technology-neutral capacity mechanism with a view to cost efficiency and in harmony with European rules. Alongside other flexibility options, a mixture of various storage technologies will be necessary in the long term. The Federal Government will press ahead with the rapid expansion of the power grids. In order to better integrate the expansion of grids and renewable energy, the expansion path for renewable energy as stipulated by law is to form the basis of the expansion of the grid.

In 2014, the Federal Government will produce a National Energy Efficiency Action Plan which contains the targets for the various fields, the instruments, the financing and the responsibilities of the various players. As a strategic element of energy policy, energy research within the framework of the Sixth Energy Research Programme will be focused on the energy reforms. The Federal Government is keeping track of the transformation of the energy supply in the “Energy of the Future” monitoring process. It will continue the dialogue with the business community, trade unions, academic community and groups in society and will comprehensively involve the citizens in the implementation of the energy reform projects.

German industry depends on a reliable supply of raw materials, particularly when it comes to developing high technologies. First and foremost, it is up to the companies themselves to cover their needs on the market. The Federal Government will support them by improving the policy environment for resource efficiency and the closed-cycle economy, promoting domestic extraction of raw materials partnerships. In order to boost resource efficiency, the German Resource Efficiency Programme is to be developed further, a Resource Efficiency Platform established and advice for businesses and private citizens improved.

“As the policies are rolled out further, greater attention must be paid to cost efficiency, economic efficiency, the ability to plan for the future, and reliability”

Environmental Concern, Overcoming the Crisis, G20 & WTO

In comparison with other industrial nations, Germany is leading the way forward on cutting greenhouse gas emissions. The Federal Government is in favour of cutting greenhouse gas emissions within the European Union by at least 40% by 2030 compared with 1990, as part of a triad of goals, i.e. greenhouse gas reduction, the expansion of renewables and energy efficiency. There are increasing signs of economic recovery in Europe. This is due not only to the measures at European level, but also to the considerable efforts made in the programme countries, as well as the supportive policy on the part of the ECB.

Nevertheless, the crisis is not yet overcome. The crisis in the eurozone has been caused by a variety of factors. They range from excessive borrowing by certain European countries to a lack of competitiveness, economic imbalances, design faults in the European Economic and Monetary Union and undesirable developments on the financial markets. The structural causes of the crisis must be further corrected. If Europe is to find a permanent way out of the crisis, it will need a comprehensive approach which combines in a socially balanced way structural reforms for better competitiveness with strict, sustainable budget consolidation and forward-looking investment in growth and jobs.

With regard to financial market regulation, the Federal Government is guided by the G20 principle that no financial market, no financial product and no financial market player should be left without appropriate supervision.

The 9th WTO Ministerial Conference in Bali from 3 to 7 December 2013 achieved a breakthrough in the WTO`s multilateral negotiations. This provides an important stimulus towards working step by step through other issues of the mandate for the Doha Round negotiations and maintaining the prospects of a successful overall conclusion. Furthermore, the Federal Government aims at balanced and ambitious free-trade agreements between the EU and leading third countries.

The Federal Government maintains the aim of providing an amount equivalent to 0,7% of gross national income for public development co-operation, German development co-operation works locally to improve the business environment, promotes regional growth and employment, and helps to develop local and regional markets.

The Federal Government would like to thank the Council of Economic Experts for its detailed and comprehensive analysis economic developments in 2013 and the outlook for 2014, as well as for its discussion in its 2013/14 Annual Report of the guiding principles of economic policy. In the Annual Economic Report, the Federal Government comments on the Council of Economic Experts 2013/14 Annual Report.


Anisa Kirana | 2014 | Published on SOROTAN Magazine – column: Headline Story, Economic Report, Germany (edition I/2014) | Source: Federal Ministry for Economic Affairs and Energy – Federal Republic of Germany. Credit to German Embassy in Jakarta for the bridge | Photo credit: Hurriyet Daily News

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