Reinhard Panse's Perspectives

Podcast

Politicians fleece the "little man"

30.7.2021

Before such an election, some politicians have been outdoing themselves for years with calls for the redistribution of everything that can be redistributed. A look at the figures shows quite clearly that it is precisely the redistributive welfare state that has slowed down income growth in the middle class and eroded prosperity.

This has a devastating effect. If politicians continue to be unwilling or unable to make sensible analyses the basis of a future-oriented policy, the wealth creation that is urgently needed in Germany will continue to be politically torpedoed. This starts with the nonsensical rent freeze, which will finally make property ownership unaffordable for everyone, and ends with wealth taxation, which will make shares as a tangible asset completely unattractive. But let's start at the beginning - with the "injustices".

Problem 1: Income is unfairly distributed

Germany has a high Gini coefficient, meaning that income is unfairly distributed. But this is only the first glance. If you take a closer look, you will see: This problem has already been solved in Germany. Because if you look at the bare figures, taking into account the redistribution of social benefits, only in France is income distribution less unequal and therefore "fairer" than in Germany. It is therefore not possible to justify increased income taxation on the basis of alleged injustice.

Problem 2: The wealth is unevenly distributed

This thesis is absolutely correct. However, it is not the richest Germans who have too much money, but on the contrary, the middle class and low earners have too little. This is particularly noticeable in a European comparison. Even in terms of the net wealth of the middle class, Germany is well below the eurozone average and cannot compete at all with the alleged starving countries such as Italy. However, the per capitawealth of the lower middle class in Germany is particularly shameful. Even the poorest 40 percent of the Eastern bloc countries are better off.

The explanation: the same mistake is always made

This abstruse situation needs to be explained in more detail, because ultimately it can always be traced back to the same political mistake: Redistribution. This comes at the price of low earners having to pay for it in the form of high social security contributions. As a result, their marginal burden of taxes and social security contributions reaches over 55% and even an incredible 60% for middle-income earners. With the exception of Sweden, even for top earners in countries such as Switzerland, the UK, the USA or Spain and also in Germany, additional income is significantly less of a burden than for German middle and low earners. This explains the physical impossibility for the lower and middle income groups to build up wealth . As a result, the welfare state only equalizes income (see problem 1), but not wealth.

The solution: Pay attention here, dear politicians

Establishing a low-cost equity-based pension scheme, as other countries have done, would be an effective long-term measure to combat the high level of wealth inequality in Germany. Another would be to improve access to property ownership for middle and lower income earners, for example by simplifying building regulations for the provision of affordable building land or waiving real estate transfer tax for first-time buyers on low incomes. None of this can be found in the party manifestos and that is a shame. Wouldn't you like to change that, dear politicians?

Politicians fleece the "little man"

Reinhard Panse's Perspectives

Politicians fleece the "little man"

30.7.2021

Reinhard Panse

The next general election is due in two months' time and because it will decide all our lives, this month's focus is on politics and money - rather than the short-term capers of the financial markets.

Before such an election, some politicians have been outdoing themselves for years with calls for the redistribution of everything that can be redistributed. A look at the figures shows quite clearly that it is precisely the redistributive welfare state that has slowed down income growth in the middle class and eroded prosperity.

This has a devastating effect. If politicians continue to be unwilling or unable to make sensible analyses the basis of a future-oriented policy, the wealth creation that is urgently needed in Germany will continue to be politically torpedoed. This starts with the nonsensical rent freeze, which will finally make property ownership unaffordable for everyone, and ends with wealth taxation, which will make shares as a tangible asset completely unattractive. But let's start at the beginning - with the "injustices".

Problem 1: Income is unfairly distributed

Germany has a high Gini coefficient, meaning that income is unfairly distributed. But this is only the first glance. If you take a closer look, you will see: This problem has already been solved in Germany. Because if you look at the bare figures, taking into account the redistribution of social benefits, only in France is income distribution less unequal and therefore "fairer" than in Germany. It is therefore not possible to justify increased income taxation on the basis of alleged injustice.

Problem 2: The wealth is unevenly distributed

This thesis is absolutely correct. However, it is not the richest Germans who have too much money, but on the contrary, the middle class and low earners have too little. This is particularly noticeable in a European comparison. Even in terms of the net wealth of the middle class, Germany is well below the eurozone average and cannot compete at all with the alleged starving countries such as Italy. However, the per capitawealth of the lower middle class in Germany is particularly shameful. Even the poorest 40 percent of the Eastern bloc countries are better off.

The explanation: the same mistake is always made

This abstruse situation needs to be explained in more detail, because ultimately it can always be traced back to the same political mistake: Redistribution. This comes at the price of low earners having to pay for it in the form of high social security contributions. As a result, their marginal burden of taxes and social security contributions reaches over 55% and even an incredible 60% for middle-income earners. With the exception of Sweden, even for top earners in countries such as Switzerland, the UK, the USA or Spain and also in Germany, additional income is significantly less of a burden than for German middle and low earners. This explains the physical impossibility for the lower and middle income groups to build up wealth . As a result, the welfare state only equalizes income (see problem 1), but not wealth.

The solution: Pay attention here, dear politicians

Establishing a low-cost equity-based pension scheme, as other countries have done, would be an effective long-term measure to combat the high level of wealth inequality in Germany. Another would be to improve access to property ownership for middle and lower income earners, for example by simplifying building regulations for the provision of affordable building land or waiving real estate transfer tax for first-time buyers on low incomes. None of this can be found in the party manifestos and that is a shame. Wouldn't you like to change that, dear politicians?

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About the author

Reinhard Panse

Politicians fleece the "little man"Politicians fleece the "little man"

Reinhard Panse is Chief Investment Officer and co-founder of FINVIA Family Office GmbH. Until February 2020, Reinhard Panse was a member of the Management Board and Chief Investment Officer for HQ Trust GmbH, which is owned by the Harald Quandt family. From 2004 until joining HQ Trust GmbH in 2011, Reinhard Panse was Chief Investment Officer of the UBS Sauerborn business unit created within UBS Deutschland AG. From 2001, Reinhard Panse was a member of the Management Board of Sauerborn Trust AG and its legal predecessors. He was responsible for the investment strategy and played a leading role in the holistic asset management and administration of large private assets. Reinhard Panse began his career by taking over capital market and client support activities at Feri GmbH in 1989, after having founded and managed his own wealth management as managing director.

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