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Tax increase because of Covid?

A new study by the FiFo Cologne on the financing of the corona crisis. The government is forced by the corona crisis to make various additional expenses. Will taxes also have to be raised after the acute crisis?

EIn Tacgenrechner und ein silberfarbener Stift liegen auf einem mit zahlen bedruckten Zettel

Three percentage points lower VAT, compensation for short-time work for millions of jobs, premiums for the purchase of electric cars - public budgets are spending enormous sums to support the economy in the corona crisis. Who will pay for this later is surprisingly unclear. Many experts are concerned about whether tax increases will be required when the crisis is over in view of the debts currently being incurred.

A current study provides some orientation. The German corona costs are probably sustainable without a tax increase. This is the result of a study undertaken by the FiFo Institute for Public Economics at the University of Cologne, which was commissioned by the Bavarian Industry Associatio (vbw). The fact that the corona costs would initially be financed by budget deficits was economically wise and politically without alternative due to the acute pressure to act.

As things stand at present, the German federal government incurs new debts of 154 billion euros for 2020. Although this is a considerable sum, according to lead author Dr Michael Thöne, this debt can still be repaid without tax increases. The study outlines an approach on how the debt brake can be improved in an investment-friendly and generationally appropriate fashion. From this perspective, the new structural annuities of 0.23 per cent of the gross domestic product in the first half of 2020 are still moderate compared to the current constitutional debt limit of 0.35 per cent of GDP.

However, this “all-clear” is only valid for the time being. There are still considerable uncertainties about the further course of the crisis. A second wave could, for example, make further government measures necessary and increase the costs of the crisis.