Commentary by businessman Martin Limbeck: Lower taxes for immigrants: how useful is this traffic light plan?

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Wednesday, July 10, 2024, 12:18 PM

There is a shortage of skilled workers in many sectors and economic growth is stagnating at historically low levels. To remedy the situation, the federal government wants to attract foreign skilled workers to Germany through tax incentives. Entrepreneur Martin Limbeck sheds light on the significance and feasibility of the idea.

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What exactly does the tax incentive for foreign skilled workers that the traffic light coalition is planning include?

In negotiations on the 2025 federal budget, Chancellor Olaf Scholz (SPD), Economics Minister Robert Habeck (Greens) and Finance Minister Christian Lindner (FDP) looked for ways to reduce the shortage of skilled workers in Germany.

The result: bureaucratic hurdles for refugees to accept work should be reduced, and skilled foreign workers should pay less income tax in the first three years after entering the country. Specifically, the growth initiative stipulates that newly immigrated skilled workers receive 30 percent of their gross salary tax-free during their first year in Germany, 20 percent the following year and 10 percent in the third year.

How does this measure fit into the federal government's growth initiative and what impact could it have on economic growth?

Robert Habeck summed it up well: “If more refugees and other foreigners can be integrated into the labour market, that will be a lever for further growth.”

That's exactly how I see it, too. There is a shortage of skilled workers in almost every industry, which means that the German economy is losing billions in revenue. For our economy to regain its strength, the number of people in employment must at least remain the same and ideally increase. Without immigration, however, things look bleak: according to the Institute for Labour Market Research and Occupational Research (IAB), around seven million people in Germany alone will retire by 2035.

About the expert

Martin Limbeck is the founder of the Limbeck Group®, a serial entrepreneur, an investor, a Senator for Economic Affairs (EWS), a member of the Federal Economic Senate of the BVMW and one of the leading experts on sales and sales leadership in Europe. In addition to his entrepreneurial activity, Martin Limbeck gives lectures and is an ambassador for Kinderlachen eV for sick and needy children in Germany. He passes on his knowledge gained during 30 years of entrepreneurial activity in his “Gipfelswärtser” think tank.

And what speaks against doing the same as other countries? Countries such as Italy, Spain and Portugal offer preferential income tax rates to foreigners, while Greece, Croatia and Cyprus have also provided incentives in their systems.

The numbers prove that it works: German skilled workers are increasingly emigrating abroad. According to a study by Destatis, more than a quarter of a million Germans will leave the country by 2022, most of them of working age and around three-quarters of them highly qualified specialists with university degrees.

With an emigration rate of 5.1 percent, Germany currently ranks third internationally. Only Great Britain and Poland have more emigrants. The main reasons for moving are work and income: a total of 58 percent cited professional reasons for moving, 18 percent said they were dissatisfied with life in Germany.

Could this plan harm German taxpayers and, if so, how will this be compensated?

Critics were quick to come: Yasmin Fahihi, president of the German Trade Union Confederation (DGB), warned of the “social explosiveness” contained in the law. The Confederation of German Employers’ Associations (BDA) said the proposal would contradict tax justice. Ultimately, German employees would feel disadvantaged.

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There is a shortage of skilled workers in many sectors and economic growth is stagnating at historically low levels. To remedy the situation, the federal government wants to attract foreign skilled workers to Germany through tax incentives. Entrepreneur Martin Limbeck sheds light on the significance and feasibility of the idea.

Calls for equality were to be expected. But let's be honest: apart from that, what's against temporarily easing the burden on foreign workers in this way? After all, they also have additional costs for moving, furnishing the apartment, etc. And we're not talking about astronomically high sums, as the following calculation example makes clear.

Let's assume that the gross salary is 45,000 euros. The regular income tax for tax class 1 then amounts to 5,919 euros per year. For a skilled worker who benefits from the new rules, this would mean a saving of 30 percent in the first year, i.e. 1,776 euros. The following year with a 20 percent discount, 1,184 euros and the third year, 592 euros. All in all, this equates to a tax relief of 3,552 euros over a period of three years.

But one thing must not be overlooked: how to manage all this bureaucratically? This would entail considerable additional work for both businesses and the tax administration.

What other measures does the government plan to improve the integration of refugees and other foreigners into the labour market?

The federal government also plans to issue work permits for refugees more quickly in the future. Instead of waiting for months of testing procedures, the so-called “approval fiction” will be used in future. In other words, the permit will be considered granted if the immigration authorities do not object within 14 days of the intervention of the Federal Employment Agency.

I welcome this decision because we have seen in the past how long these procedures can sometimes take. I would just like to remind you of the efforts that were made two years ago to get foreign workers to support the formalities at the airports. Anyone who comes to Germany and wants to work should be able to do so as quickly as possible.

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Unfair advantage or a good lever for economic growth?

I can understand that German skilled workers feel disadvantaged when their new foreign colleagues are paid more than them. This may work as an incentive to attract new skilled workers from abroad, but companies also have to develop strategies and measures to deal with this. Possible dissatisfaction within the team. However, in the long term I think it makes much more sense to review the German tax system in general.

Why can't we just cut payroll taxes for everyone and make performance in our country more valuable again? The federal government should no longer ignore how many highly qualified people leave Germany every year because jobs abroad offer more incentives.

To ensure our economy recovers in the long term, Lower taxes for immigrants: stroke of genius or injustice? This is but a drop in the proverbial ocean.

This text comes from an expert from the FOCUS online EXPERT Circle. Our experts have a high level of specialist knowledge in their subject area and are not part of the editorial team. Learn more.