Roland Dürre
Sunday May 3rd, 2015

Numbers & Taxes & Calculations.

On April, 23rd, 2015, the Federal Ministry of Finances (Bundesfinanzministerium) published information on its website about the entire tax revenue (total tax revenue of the country and states without those of the communities per month) having increased by 4.7 % over the same month of last year in March 2015 to now 57.970 billion Euros. Wow. Doesn’t that sound nice! After a balanced federal budget. Because the economy booms. Consequently, we have a high turnover and increased tax revenue. What a brave new world.

However, it is not as easy as it sounds. There is one adjective missing: “nominally”. Because this would clarify that the number is not such a great number, after all.

Here are a few ideas of mine.

In “West Germany”, the retirement money will be increased by 2.1 per cent in 2015, in “East Germany” by 2.5 per cent. The Federal Government decided late in April that this is going to happen on July, 1st, 2015.

The annual increase of retirement money basically takes the development of the total income into account, separately for western and eastern counties. Let me cite

The data relevant for the increase in retirement money have been processed in the spring of 2015. Now we can give the precise number for the retirement money increase. Due to a statistical once-only effect, however, the retirement money increase of 2015 will be one per cent lower than without this effect. We are talking EU regulations requiring a revision of the workforce statistics. For instance, certain groups of low-income employees have to be included in the statistics, which has a negative influence on the central incomes the retirement money increase rate is based on.

Now that, too, is a topic – just because of a new EU regulation, the retirees get less than they would actually be entitled to. But this is not what this article is about. I conclude that the extra tax revenues result from higher incomes (around 3%) and the additional cold progression.

I also read:

Consequently, the increase in retirement money in 2015 is higher than has been predicted by the German Retirement Money Insurance Association. Neither is there an inflation influence, since the last inflation rate was minus 0.1 per cent.

This is also something that makes me thoughtful. Does that mean that the poor predictions actually make the incorrect increase more legitimate? And how is it possible that persons who have to rely on their retirement money are worse and worse off, regardless of life getting cheaper and cheaper and retirement money increasing? No. In fact, it is not correct. In my own environment, I regularly perceive considerable price increases. For good food on the market, at the (real) bakery and butchery, having to pay craftsmen and doctors, for public transportation, for everyday products such as good bikes. Or for real estate and rent. Everything gets more expensive. Beer, ice-cream and pizza. The increase is actually surprisingly high. And with those (not just) felt inflation rates, those 4.7 % more tax revenues are basically no longer such a great thing.

Only junk gets less expensive. But then, every child knows that cheap junk will eventually cost you more. And fuel (temporarily) got cheaper. But then, who needs fuel if they have no money, anyway? Only the well-to-do (I count myself among them) burn a few hundred litres of fuel each month with their luxury limousines (which is not something I do). The savings might then be spent on a luxury item. For instance a beautiful scarf – which today might well be 370.- Euros at Loden-Frey. I saw it last week. And since even the cheap scarves were all around 200,- Euros, as well, I exited the shop empty-handed. Because the prices for luxurious items actually explode – as a side-effect of which again more tax revenues are earned by the Federal Office. Except that if more luxurious items are sold, this is not an indicator that people in the country are generally better off.

For instance the increase in tax revenues for added value tax and other taxes such as real estate transfer tax benefit from an actually happening inflation, even if it is not statistically visible. The shopping cart developed for statistical reasons is a lie.

Regardless, one should rejoice at hearing that the revenues have increased. Except that you should not forget the opposite side: the money spent. And that basically increases to a far higher extent than the aforementioned 4.7 per cent. Just think of the major components of the Federal Budget such as Social Welfare, for instance pensions for former public servants. Or the almost normal cost increases when it comes to public infra-structure projects. For instance when we consider the construction (Bau) of the Ismaning motorway junction (see also my IF Blog article).

And after reading an article on this where a District Administrator said that “a general increase by 15 per cent for these kinds of projects is rather normal”, I think this is realistic.

Consequently, I am afraid the story they tell us about the balanced federal budget, too, is just a lie. Because we are lucky to have these low interest rates. You know, matters might change quite quickly. No reserves are kept for actually threatening losses. Everybody seems to accept securities that lie in the future for loans, knowing full well that there will be a time when you have to pay them back. It will probably happen quite soon that massive cost increases can only be met by strict economizing, which many parties concerned will have to pay for. Those proudly proclaimed 4.7 per cent will not be any help and presumably the low-wage earners will again be the ones who have to pay the price. Their savings are already being downgraded by the zero-interest policy, anyway.

But let me return to taxes and added value tax. Why don’t you try a hilarious experiment and ask (not just) young persons in this country how high the added value tax rate is? You will be surprised to hear the answers. “I have no idea” is among the harmless ones. Here are the currently important numbers on taxes (from Wikipedia): 
Since January, 1st, 2007, the normal rate is 19 per cent and the reduced rate of 7 per cent has been active since July, 1st, 1983.[2]

And if you wish to be even more surprised, then ask all those people – after having informed them about the correct rate – how much of the 370 Euros you would have to pay for the scarf are added value tax. Many will not know. Consequently, you will get quite humorous replies, but not very often the right answer (that you have to divide the 370 Euros by 119 and then multiply the result with 19). And then people look at their mini calculators and see the result with an air of amazement.

Incidentally, I am quite surprised that they did not make 20% the normal added value rate. The calculation would be so easy: you take 1/6 of the total price and add 1/5 to the net price. But then, who knows the difference between “net”, “gross” and “tax weight” today? And who knows in-hundred, of-hundred, or on-hundred calculation?

To make up for the one extra per cent, one might have lowered the income tax a little. Or at least, they might have coordinated the progression intervals with the inflation rate.

And if you want to further annoy your partner, you can ask him about duty on spirits, duty on energy, real estate transfer tax, coffee tax, tobacco tax, (… Branntweinsteuer, Energiesteuer, Grunderwerbssteuer, Kaffeesteuer, Tabaksteuer …) …

(Translated by EG)

1 Kommentar zu “Numbers & Taxes & Calculations.”

  1. Chris Wood (Monday May 11th, 2015)

    Good stuff, Roland, but I wish to add a couple of points.

    Of course, 19% Vat is chosen to make the calculation harder. Not only does this help to keep people ignorant of the amount of (their) money being wasted, by the people in power, (not just politicians at all levels), but it reduces unemployment by creating extra book-keeping work.
    Similarly laws are made, (by lawyers), more and more complicated and contradictory, to create (well paid), jobs for lawyers, (including judges).
    German pensions need to be reduced relative to average wages, because people live longer, and few are permitted to work longer, (despite laws against discrimination according to age). In England twice as many work beyond 65. Incidentally older people in England can also give blood, which is known to be healthy.
    But that is not all; increasing world population and depletion of resources mean that the World average income must drop. Those in power are supporting the average as long as they can, which will result in a worse crash, when it comes, (unless some wonderful solution is found).
    Capitalism leads to increasing average income, but also increasing inequality within and between countries. This can lead to revolution or war.
    The well-researched books of socialist activist Naomi Klein are important. “Nologo” and “The Shock Doctrine” show how the World has accelerated downhill in the last 50 years.
    Her “This Changes Everything” is a fine documentation of how we are accelerating climate disaster, while pretending to work against it. Strangely, she almost welcomes this, as she thinks it can force us to adopt democratic socialism. I believe this will not happen and anyway would not have her desired effect. The increasing city dwellers will not take up subsistence farming!
    Steven Hawkins recently lectured that man on Earth will not survive another 1000 years. (I wrote this much earlier). He cited the chance of an asteroid hitting Earth in that time, which I see as less than 1%, and cited other possible reasons. He proposed that we should colonise space.
    I think he is silly to propose ruining other moons and planets to compensate for ruining our own.
    I would propose preserving the last rainforests and their indigenous people, as they are likely to be best at surviving World War 3, (which will come sooner than the asteroid). But more likely is destruction of “intelligent” life, or the replacement of humans by a new life form, (some sort of robots or enhanced humans).
    It is interesting how the media always greet share price rises with enthusiasm. Did you ever read or hear a report about the sad inflation of share prices, increasing inequality and wasting resources on products that nobody needs?

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