Florian PrangeWednesday December 17th, 2008
Here comes an article by our guest Florian Prange!
Turbulences of the international financial market causing a world-wide economic crisis again clearly show us one thing: our monetary and financial system is one of the basic motors in today’s society. Consequently, the basic rules of the financial market have a huge influence on our activities. They also eventually determine whether we succumb to a short-lived profit-orientation in a speculative capitalism defined by gambling, or if we turn to a path of development that encourages long-term and responsible economical behaviour.
Tax and financial politics work similarly, in that they – apart from directly regulating the public budget – also strongly influence the activities of economic players through a number of strong – and sometimes contradicting – motivational incentives. In doing this, politics often have more influence on the basic developments of our society than through formulating and executing goals in the political decision process. This is extremely evident when you look at environmentally detrimental subsidies and tax benefits granted through the federal budget under the aspect of motivation (in fact, it is evident as soon as the subsidies appear in the federal budget, rather than later when you look at them).
For instance, the constantly propagated important future goal of our government to invest in climate and education is grossly contradicted by what our money is actually used for in the federal budget. However, the actual dimensions of this aberration are only evident if, instead of just consulting the facts as written down in the federal subsidy paper, you also take into consideration the exceptions as written down in the various federal laws. Here, economically rational behaviour is hindered by a lack of transparency.
In order to document the actual extent of misdirected federal incentives, the forum ecological-social market economy (FÖS) sponsored a survey on the balance of all federal subsidies detrimental to the environment and climate done by Greenpeace in 2008. In all, we are talking approximately 34.5 billion Euros, which is about 13 per cent of the federal budget of 2007. If they were separately listed, ecologically counterproductive subsidies would therefore – along with what we spend on employment, social services and the federal debt – have a top position on the list. For instance, they are several times higher than what we invest in education and science, which is around 8.5 billion Euros.
For the big stone coal and nuclear power companies, the situation is particularly profitable: even though the direct subsidies for stone coal – currently around 1.8 billion Euros – slowly come to an end, the federal budget is still deprived of around 3.7 billion Euros because the environmentally detrimental coal is not or hardly subjected to tax. Brown coal, the most environmentally detrimental of all heating material, is subsidized with at least 200 million Euros. The directors of nuclear power plants profit several times over: being exempt from tax, they safe 1.6 billion Euros per year. Another 800 million Euros gets back to them through the tax exemption they are granted for planning a future nuclear plant deconstruction.
In the section of transport, the commuter bonus currently under intense discussion and meanwhile re-established by the federal constitutional court is only the tip of the iceberg. The lower mineral oil tax on Diesel petrol means 6.15 billion Euros less in tax every year, even though Diesel petrol emits more CO2 and carcinogenic particles than normal petrol. Petrol for airplanes being tax free means another 8.7 billion Euros. Airlines also save 600 million Euros in taxes because they pay no value added tax for long-distance national flights, while the federal railways have to pay the full tax. The federal bursar also does not subject privately used company cars – they often need enormous amounts of petrol – to much tax, which means another half billion Euros lost to him. Not to mention the billions of untaxed Euros claimed as depreciation when the cars are bought.
As opposed to this, the federal investments in education and science look gloomy, regardless of what the political elite tries to make us believe. Especially in an area that is extremely important for a country of few natural resources, the Federal Republic of Germany is near the bottom of the world-wide list. A study by OECD again revealed that Germany’s investment in education, at 5.3 per cent of its GNP, is significantly lower the average among the 30 most important industrial nations. According to the survey, the gap between Germany and other countries investing more into education continually grows. For example, in order to average the international standard of 5.8 per cent of the GNP, we would have to invest an additional 16 billion Euros. “Germany is losing ground”, is the laconic comment of the OECD survey. And yet we continue to accept that environmentally unfriendly behaviour consumes several times as much as the entire budget for education.
On the other hand, however, this misallocation of public funds also shows that a rigorous reduction of wrong financial incentives can open capacities for significant future investments. But in order to achieve this in the interest of the common good and future generations, politicians would have to be courageous and oppose individual interests of powerful lobby groups. Which, when all is said and done, is the encouraging message inherent in these originally depressing numbers: there is financial margin for a constructive future policy, and this chance is one we should use well
It is possible to conserve future resources!
The entire subsidy survey can be found at Greenpeace.
Florian Prange is a mathematician and founder of ProjectComplexity in Hamburg. Since 2007, he has also served as board member of the Green Budget Germany, initiating the black book on ” subsidies and tax reductions detrimental to climate and environment” published for the years 2006-2008 by FÖS and several environmental organisations.
(translated by Evelyn Gemkow)