Wolf Richter: No Wonder German Workers Drag Down Retail Sales – And Much Of The Economy

Yves here. Now we learn one of the reasons Germans are so keen to punish periphery countries. Germans don’t get enough retail therapy!

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Testosterone Pit.

Not that 2013 was such a great year in Germany, economically speaking, with growth stalling out at a measly 0.4%, barely above the dreaded zero line. But it was a great year, nay, superb year, for extracting taxes from hard-working people. Tax collections by the Federal Government and the Länder (states), according to the Ministry of Finance, rose a combined 3.3% (in a stalling economy!) to €570.2 billion, the highest ever.

A few delicious goodies:

Corporations got off easy: After years of “tax reform,” the coddled German multinationals, and maybe even the Mittelstand – those closely-held global niche players that are the official pride of Germany – had apparently soaring profits, and corporate income tax revenues soared in parallel 15.2% to … drumroll … €19.5 billion. A mere 3.4% of all taxes collected! OK, they also faced other taxes, about which they have been complaining vociferously for years, including their share of €39.4 billion in energy tax, €7 billion in electricity tax, and €1.2 billion in nuclear fuels tax.

Consumers got whacked: revenues from the Value Added Tax (VAT) hit €196.8 billion – ten times the amount of corporate income taxes, and by far the largest component of all taxes. Individual income taxes jumped 6.1% to €158.2 billion – the second largest component. Workers also paid €14.4 billion in Solidarity Surcharge – a “temporary” tax to fund the bailout of East Germany after Reunification. They paid special taxes on tobacco, spirits, beer, and coffee. They paid taxes on motor vehicles. They paid big-fat taxes on energy. They paid taxes on income and consumption until they croaked.

So this shouldn’t have come as a surprise: Last year, the ECB finished up a Eurozone-wide household-wealth survey, but when the Bundesbank refused to publish the German data, insiders leaked the reason: too explosive! Apparently, Italian households were far wealthier than German households. Shocking! But the truth, when it was finally published, turned out to be far more shocking. Read… Total Fiasco: Germans are the Poorest, Cypriots the Second Richest in The Eurozone

German consumers have been croaking for years under the suffocating tax burden. What gives? Retail sales. Despite current surveys that somehow prove beyond doubt that consumers are feeling flush with optimism, they stubbornly refuse to express this optimism with their wallets – and wallets don’t lie.

I have seen the word “shock” in the US to describe the debacle: German retail sales in December fell 2.5% from November (seasonally adjusted). It should have been an up month. It should have ended the drab year on a positive note. But it didn’t.

Retail sales were 2.4% lower than in December 2012, which had already been a very lousy month. The normal calendar excuse that there were fewer selling days didn’t apply this time as both Decembers had 24 selling days. And so for the year 2013 as a whole, retail sales adjusted for inflation inched up 0.1%, a mere rounding error, in an economy that was supposed to be booming. And they were down 3.6% from … drumroll again … 1995!

In our world where consumerism reigns, where you shop till you drop, Germany experienced nearly two decades of retail quagmire. And this is what it looks like: a sadly drooping zigzag line – one of the most unusual long-term retail charts in the world, or perhaps the only one.

German-retail-sales-1995-2013

Somebody has to pay the price for the official government policy that every administration, regardless of hue, has to adhere to: maximize exports no matter what the costs or risks. And it certainly isn’t “Germany AG,” the powerful fusion of large corporations, that is being asked to step up to the plate. As real wages and benefits have been whittled down over the last 20 years, and as taxes on workers and consumers have been raised incessantly and in a myriad nifty ways, while they have been lowered on corporations, it’s clear who pays the price. And these strung-out folks simply don’t have a lot of money to spend.

Since 2012, German economic growth has been back where it was when Germany was called the “Sick Man of Europe.” Only this time, Germany has been anointed the model economy for others to follow and admire, and its stock market has defied gravity. Read…. German Economy Wobbles Between Shrinkage And Stagnation

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27 comments

  1. Tom

    Wolf Richter neglects to mention that real wages actually rose by at least 3 % in 2013. That is the reason why taxes rose as well. Here the tallies for the third quarter 2013 (the fourth isn´t out yet) https://www.destatis.de/DE/Publikationen/Thematisch/VerdiensteArbeitskosten/ReallohnNetto/ReallohnindexPDF_5623209.pdf?__blob=publicationFile
    About corporations paying close to no tax he is right. But it is far fetched to attribute dismal retail sales to that factor. Much more important is the savings rate. At least if you wonder why spending per capita is so much higher relativ to income in the UB and the US. (And that seems to Richter´s frame of reference) It has somewhat dropped to 10 percent but is still five or six times the rate in GB or the US. THAT is the main reason for Germany´s dismal retail sales. If you could get consumers to load up to the gill with credit like in the US you would get an explosion in retail sales. You don´t and that is the same in most countries of continental Europe. The reason for it is surely cultural as the interest on deposits is confiscatory.

    1. Yves Smith Post author

      Why should US savings rates be treated as normal? The Germans have vastly better social safety nets, ergo you’d expect to see not quite so aggressive savings. Of course, since most rent, they don’t have houses as a theoretical forces savings vehicle. But their generally much more affordable housing would seem to allow for more spending than they engage in.

      1. Yancey Ward

        The Germans have vastly better social safety nets, ergo you’d expect to see not quite so aggressive savings

        .

        If you know you are on the hook for a more extensive safety net, won’t you try to balance the needed payments by consuming less and saving more? That safety net isn’t free.

        1. bmeisen

          If you know you are on the hook to save the world and have to finance the most wasteful, corrupt and unsuccessful war machine in the history of mankind to do so, won’t you try to balance the needed payments by consuming less and saving more? That war machine isn’t free.

          Germany is a bust for MC/Visa. They can’t rake it in over here the way they do in the States because regulation makes it harder for them to rip users off, and because Germans are culturally less vulnerable to debt than Americans, and because there is no checking here, which is a means by which American banks set American consumers up for the credit card trap.

        2. Ben Johannson

          Ricardian equivalence nonsense. There is no empirical evidence that people save more against future taxation.

  2. salvo

    well, since that The german political elites (combined in the neoliberal block partiy cducsuspdfdpgrün) want germany to finally assume its ‘responsibilities’ in the global game of geostrategical chess …. as spd steinmeier said, germany is too big to stand aside …., so the german under and middle classes will have to get used to being increasingly burdened upon the costs of assuming those responsibilities. And, they will as always comply

    btw … I suppose that’s what Hollande and its ‘socialist’ party demanded in return for assuming the german deflationary agenda policy, Germany accepts to covers a greater share of the costs of the interventionistic neocolonial ‘european’ politics (by european one has to primarily think of the the french-german axis) – as europe has originally been conceived by de gaulle:

    “What is the point of a Europe? he confided Alain Peyrefitte on August 22nd 1962. It should serve to prevent us from being dominated by America or Russia … France could be the strongest of the six members. We could control this lever of Archimedes. We could carry away the others. Europe represents the first opportunity France has to regain what she lost at Waterloo: world dominance. ”

    http://bilbo.economicoutlook.net/blog/?p=26794

    …. ironically, that’s germany which has the finally gained control over europe, even if France may to some extent be allowed to pursue its ‘grande nation’ ambitions – within the greater framework of grossdeutschland of course

  3. The Dork of Cork

    What do people expect.
    The euro is the most extreme hard money / easy credit (see bankers money) currently on this planet.
    Its not so much imports and exports but very nature of the goods trade itself.
    In Ireland and elsewhere a creditworthy person (generally a person with a pointless managerial job and thus cashflow) can get 0% finance to buy a brand new car.
    However there is no money for local trade.
    Irish internal commerce essentially no longer exists.

    Now even Irish milk consumption is tanking despite the addition of 1 million ~ extra souls and a explosive rise in infants since the early 90s

    Irish Milk sales for human consumption (million litres)
    All Milk
    1992 : 525.2
    1998 : 543.2 (peak)
    2013 : 479.0 (trough)

    The Euro prevents internal adjustment , all economic activity is focused on external trade .
    These Irish goods should be cheap relative to cash flow and external goods more expensive.
    Instead the Euro most especially creates a strange inversion of physical economies where trade is no longer a question of who has comparative advantage , trade activities is merely used to pay external debt causing dislocation flux and malinvestment.
    This malinvestment is fully charged to former citizens via increased taxs , wage deflation , and internal goods inflation (all of these are essentially identical )

    This is a classic Hanoverian banking union tactic.
    We are dealing with a force of pure evil.
    And this explains the strange trade and monetary cooperation between deficit England and surplus goods Germany.

    We in Ireland & elsewhere are in the process of being replaced by other populations.
    Another clearance is happening under our very noses.
    You see Cultural destruction is needed to clear the way for further monetization of all human activities.

    http://www.youtube.com/watch?v=aIbSM_g272w

    1. Wayne Reynolds

      Thank you for the beautiful link. It gave me thoughts of what an alien intelligence might think on encountering a dead earth.

  4. Aaron Layman

    Interesting post. Perhaps its just a matter of time before German citizens wake up to the same reality….that they’ve been sold a bill of goods and a bundle of taxes to pay for it. Fits the same model we’re following here in the states as overt policy seeks to provide every available stimulus imaginable to the corporate “growth” strategy, capitalism at its worst on full display.

    1. JohnnyGL

      Honestly, it seems like the European political classes are very insistent on committing suicide. Watch the hue and cry when they get Le Pen elected for their troubles.

  5. Banger

    Sorry, I don’t equate consumption with virtue as Mr. Richter does, in fact, I say just the opposite. Also, Yves, retail spending is no more therapeutic than a good night at a bar in fact, probably less therapeutic in my experience–btw, I know you’re kidding.

    Anyway the figures are very “lite” and don’t indicate much other than a tendency of Germans not to consume lately. Germans still, if you take out the consumption = virtue meme, live better than Americans–less stress, more conviviality.

  6. Robert Frances

    Interesting article, although I’d be curious to know how much rent and housing prices increased during the year. If we earn more income, but if our taxes and housing costs go up by a similar amount, then the higher incomes don’t really increase a worker’s disposible income.

    The relationships of gross pay, relative tax burdens, housing costs and retail consumption describes an interesting aspect of the current economic conundrum: we’re producing far more goods and services than ever, but much of the output is being absorbed by higher tax burdens and significantly higher housing costs. Over the past 50 years, Wall Street has done very well, the landlord families and real estate developers have done extraordinarily well, and government expanision has been substantial. But the bottom 2/3 of families that live month-to-month on a paycheck are often far more economically insecure than the same working families 60 years ago. It’s not just higher population growth that is often given to explain a lower standard of living for many. It’s a fundamental shift of a nation’s total output to the financial, landlord and governmental sectors.

    Here in California people migrate from all over the world, attracted to the relatively high salaries and wages. But after they pay higher taxes and higher housing costs, a worker’s net purchasing power may not be all that much more than other places.

    One issue I question from the article is the assumption that corporations “pay” tax. Notwithstanding the Supreme Court telling us that “corporations are people,” fictional legal entities such as corporations never “pay” taxes. Only people pay taxes. Any tax imposed on a corporation (or any business) is generally passed along to the customer. If competitive pressures prevent a business from passing along a new or higher tax, then the business will try to squeeze the extra tax burden from suppliers or employees. If the business can’t do this either, then it’s the business owners and executives that will ultimately “pay” the tax. In all cases, it’s a person, not the business, that’s bearing the tax burden.

    Businesses are excellent at “collecting” taxes because they control the production and distribution of a society’s output of goods and services, and thus they control and concentrate the money flows. But the current “profit tax” is a sham. It’s too easy for companies to shift profits to low or no-tax jursidictions, and shift higher costs to their US and European subsidiaries, where they report lower profits.

    Shifting business tax collection by repealing all profit taxes and replacing them with far lower graduated tax rates on business sales, or net sales, would give governments a far more stable tax, a relatively fairer tax, and a business tax that’s much easier to audit and almost impossible to evade with cross-border financial transactions.

    Business taxation is a topic that affects everyone. Progressives across the world should consider adding it as one of their key reform demands.

    1. Wayne Reynolds

      You are assuming progressives are considering the reform of Capitalism. I think most real leftists are advocating replacing Capitalism.

  7. Yancey Ward

    Any study that claims Italy has more wealth than Germany is immediately worthless. I am guessing Italians hold a lot of ultimately worthless financial products.

    1. Francis Cianfrocca

      Native Italian speaker here. Relative to people in other places, Italians prefer real wealth to financial wealth. Their government is heavily indebted, but the people themselves are far less so. The Italian banking sector is a heavy net purchaser of government securities. The people tend to hold cash balances in preference to financial products. You might argue that euro-denominated cash balances are an ultimately worthless financial product, but in this time of near-deflation that wouldn’t be my position.

      The big econ story in Italy in recent days has been the decision by consumer-durables maker Electrolux to shutter a large production plant. The Italians are waking up to the fact that their manufacturing businesses, while capable and well-managed, suffer from systematic cost disadvantages. Of course, these disadvantages flow directly from the country’s extensive social commitments by the official sector.

      In a competitive world, you can’t have both a generous government and low costs. But Italians will tell you that they work to live, not the other way around, so I have no doubt that they will accept a diminution of their international competitiveness and an ultimately lower standard of living.

      But they won’t start loading up on financial products and start using consumer credit as a result. There’s a deep cultural bias against that. Italy is a much more resilient society than many superficial observers realize.

  8. LizinOregon

    Two questions popped into my mind. The first is whether their job sharing to keep unemployment down in the recession is reducing individual household income. And the second is whether the German safety net is being dialed back as it is in other European and Scandinavian countries and this is leading to more saving.

  9. Veri

    VAT is what the rich here on both sides want in America. Structured so that their taxes are furthered reduced. The VAT takes about 17% of a worker’s income in Europe. A German worker making Euro 30,000 a year is vastly more impacted than a German making Euro 1,000,000 a year.

    The VAT is a tax to keep the poor in their place. End of story.

    1. Robert Frances

      Many people would agree with you based on reading comments posted on various economic and social justice websites. The harder issue is formulating a consensus on what taxes would replace regressive VAT and sales taxes. (I would add regressive payroll taxes to the mix.)

      I favor relatively low graduated business gross receipt taxes (charged and collected at the business level, not at the consumer level), and higher graduated tax rates on family incomes (over $250,000?) received from passive sources: rent income, dividends, interest income, royalties, capital gains and outsized stock option grants.

      A 60-90% tax on all capital gains from real estate investments (other than a personal residence) would raise significant revenues, and likely help reduce the cost of housing for everyone.

      Finally, a graduated wealth tax of 5-15% on family wealth greater than $10 million would generate some revenue for government coffers, which could be sued to reduce or eliminate regressive payroll and sales taxes. Higher graduated estate tax and a new graduated tax on inheritances (over $1 million?) would complement the wealth tax.

    2. Podargus

      VAT is a regressive tax and is designed to impact those on lesser incomes more than the wealthy. This is why that sort of tax is introduced.

      Tax regimes originate in the legislature. The lesson is clear – elect representatives who will govern for the people,not their mates in the oligarchy.

      Here in Australia we have a Goods and Services Tax (GST) currently set at 10%.This was introduced by a former Tory government. The proceeds of the tax are shared between the states. There are frequent proposals to extend the coverage and the rate of the GST. As the states are continually being short changed by the Feds they are the source of some of these proposals.
      No prizes for guessing where the rest come from.

  10. Matron

    Although there is no doubt that the reliance on personal taxes over income taxes comes at the expense of working class and lower middle class household and should be adjusted, it might be noted that those taxes also pay for a German society where citizens, by and large, enjoy decent living standards, good public services, good health care, reliable transport infrastructures, a (to date, although this may change) significant long-term investment in sustainable energy, high quality housing stock, worker/tenant/consumer/data protection and pensions that allow retirement above the poverty line for most people. Although Germany’s post-tax Gini coefficient (the metric that determines how unequal a country’s distribution of wealth is, with 0 being completely equal and 1 being completely unequal) rose from 0.251 in the 1980s to 0.295 in the late 2000s, that still keeps it comfortably ahead of the US (0.378), the UK (0.345), Australia (0.336), New Zealand (0.330) and Canada (0.324) – all of them countries that have drunk the Anglo-Saxon free-marketeer cool aid.

    One might also want to mention that the majority of the increase in inequality (from 0.256 to 0.285) happened between the early 1990s and the mid-2000s when Germany absorbed the integration of a formerly communist state with a vastly under-productive economy. There are not many countries that would have been able to pull this off without descending into a spiral of underinvestment, debt, raging inequality and riots in the streets.

    So maybe asking your citizens to pay tax isn’t the real problem (I love Stephen King’s 2012 polemic rant on this issue, see http://www.thedailybeast.com/articles/2012/04/30/stephen-king-tax-me-for-f-s-sake.html). What you spend that tax on and how fairly you distribute it among your citizens, is.

  11. Ignacio

    No wonder why Germany has such an enormous commerce superavit. Households are squeezed to maintain the surplus. Is this supposed to be “virtue”? One musn’t know much about Keynes to realise that if every country does the same global commerce would shrink brutally. Let’s go on playing the fool with competitivity, high and poorly redistributive taxes as VAT, and we will end with one hundred Hitlers competing for the ruins of capitalism.

  12. Tom Bradford

    I recall when I worked (briefly) for the UK’s Inland Revenue shortly before going to University in 1971 the top rate of Income Tax was 83% to which could be added an extra 15% if the income was ‘unearned’ – ie from stocks, shares, rental properties not actively managed etc.

    Of course the UK was then still coming out of the economic cloud of WW2, ‘council housing estates’ were spreading quickly across England’s Green and Pleasant Land, education was free right through to graduate level for those who made the grade academically, the National Health Service was the same age as me and the dream of building a land fit for the heroes who had won the war had not withered and died.

    Still, a top rate of tax on the rentiers of 98% must have made the pips squeak, and if it happened before it can happen again.

    Ps. I’ve no memory of the level of income at which the top rate was imposed, but it would be pretty meaningless anyway, as IIRC you could buy a very nice 3-bedroom house with a sizeable garden for $5,000 – and even that seemed an unattainable sum to a working-class lad.

  13. Fiver

    It appears Germans who’ve in a broad sense been given the same tough choices as Americans by their respective corporate classes, have simply placed greater value on the safety net and other substantial social goods than on consumption given the absence in Germany of anything remotely resembling the middle class tax revolts in the US. If so, they will be far better positioned for the next great economic transformation that must occur if humanity is to avert calamity. As a nation always resource poor, and with a north temperate climate with 4 true seasons, an awareness of limits and a penchant for savings alongside a managed surplus safety net is perhaps not so strange – it is after all the country that gave us the Green Party.

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