Martin Schulz, head of the center-left Social Democrats (SPD) and challenger of Chancellor Angela Merkel in general elections this fall, said all the right things to a group of business leaders in Berlin on Monday. He promised to make the digitalization of the economy one of his main priorities, provide tax relief for small- and medium-income households and prioritize investment.
He also pledged that he would not deliver “unrealistic social promises nor unrealistic tax-cuts.”
But the plans from the party headquarters in Berlin are telling a different story. Economists have calculated that the SPD’s campaign promises to date, which range from cuts in energy tax, free daycare and more infrastructure investments, could cost the government an extra €30 billion annually.
His speech in Berlin highlighted the tricky role he must play in appealing to businesses – which generally tend to be supporters of Ms. Merkel’s party or the pro-business liberals, FDP – and his party faithful. Just after he became leader in January, he presented himself as a safe pair of hands, defending the interests of citizens. At the business meeting on Monday, however, he presented himself as a representative of Realpolitik. He thanked economists and former Chancellors Ludwig Erhard, Karl Schiller, Gerhard Schröder and Ms. Merkel for their contributions to the German economy before outlining his plans for growth.
Martin Schulz presented himself as a safe pair of hands that would not upset business, but now he has also made some promises that will be expensive to keep.
But the Social Democrats’ plans Mr. Schulz defended on Monday will be expensive to keep.
Take health insurance. The Social Democrats have called for parity between employers and employees for health care contributions to be restored after it was lifted by Mr. Schröder government in 2005. The move would cost employers an extra €6 billion a year. Employees, on the other hand, would save around €130 per year on average.
Even the promise of digitalization will be expensive. Even if the SPD sticks with current government plans, upgrading the German network will cost €4 billion per year. However, economist Uwe Cantner at the University of Jena pointed out that this could lift GDP growth by at least 0.5 percentage points.
The plan with the heftiest price tag comes from Mr. Schulz's plans to reform employment benefit. Under a SPD-led government, job seekers would be able to qualify for re-training programs. The party estimates this can be done for €400 million, but experts say there are already 400,000 people who would benefit from this program, driving the costs even higher. The Federation of German Employers (BDA) say that people who participate in retraining programs will be unemployed longer, requiring more benefits. The BDA has calculated that the plan could cost as much as €16.8 billion per year.
Heike Anger is an editor for economics and politics at Handelsblatt and Handelsblatt Online. Martin Greive is a correspondent for Handelsblatt based in Berlin. To contact the authors: [email protected] and [email protected]