Economists advocate tax deductions for foreigners
Germany currently lacks approximately 573,000 qualified labor forces. The German government intends to recruit these from abroad and lures them with lucrative tax incentives. The Institute of the German Economy (IW) in Cologne is not in favor of these plans.
According to the Institute of the German Economy (IW), the annual costs for the tax incentives for foreign specialized workers proposed by the German government amount to 600 million Euro. However, they would "bring little relief," in the words of the IW, to the skilled labor shortage in the German economy. Less bureaucracy and shorter visa procedures would be more effective, the IW expert Martin Beznoska opines. Moreover, he questions whether this instrument would even attract additional specialized workers, given that it would expire after three years.
The German government has proposed that for foreign specialized workers, 30% of their gross wages be tax-exempt in the first year, 20% in the second year, and 10% in the third year. According to the IW, this regulation would apply to approximately 70,000 people from non-EU countries who are receiving a work permit for the first time.
Regulation for 70,000 People
In the first year, the state would forgo tax savings of around 300 million Euro based on IW calculations for these tax concessions. After three years, when the first cohort would only receive a 10% discount and new specialized workers had joined, costs could reach up to 600 million Euro per year.
The costs could potentially be higher or lower, depending on how well foreign specialized workers are trained and how much they earn. However, they could also be lower if specialized workers returned to their home countries or if less qualified workers arrived.
If the 30% tax exemption applied to the entire population, the tax losses would be approximately 160 billion Euro. This represents almost 40% of the total income tax revenues, as per the IW. Even if 10% of taxes were waived, the state would still need to account for a loss of 60 billion Euro, which is 14% of the revenues.
The Institute for German Economy Cologne (IW) argues that while the German government's tax policy for attracting foreign specialized workers is intended to address the labor market shortage, it could potentially lead to significant annual revenues loss of up to 600 million Euro. Martin Beznoska, an IW expert, suggests that less bureaucracy and shorter visa procedures might be more effective in attracting skilled labor and relieving the labor market shortage in the German economy.
