ZEW Survey on the Effects of the Austerity Package

The reform package proposed by finance minister Eichel will not influence the current labour market situation. This is the result of a current survey conducted by the Centre for European Economic Reseach (ZEW) in Mannheim, which included 265 experts from banks, insurances and industrial companies.

In its currently discussed version, the austerity package comprises five laws. Some important measures include the lowering of the level of re-indebtedness of the federal government by reducing the pension increases on an inflation-adjusted basis (German Budget Consolidation Law), the increase of child benefits and allowances (revision of the regulations on family allowances), and the increase of the mineral oil tax on fuels as well as of the electricity tax (law on the continuation of the ecological tax reform). Further measures include the taxation of endowment life insurances (Tax Adjustment Law) and the decrease of the corporation tax rate to 25 per cent (Business Tax Reform).

Especially respondents from insurances were pessimistic in their assessment of the austerity package: 56 per cent expect negative effects on the household wealth formation, while only about 45 per cent of experts from banks share this opinion. Insurance providers apparently fear adverse effects on the setting up of private pension plans. It seems that bankers, by contrast, believe that private households can replace whole life insurances by other equivalents to private pension plans.

Only about 14 per cent of the 265 survey participants are convinced that the austerity package brings about positive effects for the social stability. This result of the survey is probably due to the controversial plan to reduce pension increases, while it also confirms the trade unions' opinion that the reform programme is socially imbalanced. By contrast, the effect of the programme on the overall economic growth is evaluated positively. Only 17 per cent of the respondents expect negative effects. On the whole, the experts display mixed feelings over the package. Although they believe in better growth prospects as a result of the reform programme, they do not believe that the growth impulses are strong enough to create additional jobs.

Contact

Birgit Sasse, E-mail: sasse@zew.de