Excess profit tax for Biontech too? "With their margins it's definitely possible"

IG Metall boss Jörg Hofmann is in a good mood during the interview in the Berlin union headquarters. The graduate economist considers the doomsday scenarios presented by some companies to be exaggerated. Some metal companies could still expect high profits - if the state initiates further aid.

WORLD: Mr. Hofmann, inflation is rising, energy prices are exploding. Is Germany sliding into a recession?

Jörg Hofmann: The risk is high. It will be crucial that proper wage developments, state relief and the curbing of price developments succeed in ensuring stability with purchasing power.

WORLD: Do you expect a wave of bankruptcies and unemployment?

Hofmann: The gas shortage – the sword of Damocles – has been averted for the time being. It would have led to the shutdown of production. The forecasts currently show a slight economic downturn in the fourth quarter and at the beginning of 2023. However, it is not the extreme slump that we had during the Corona crisis.

WORLD: You sound surprisingly relaxed.

Hofmann: I'm not relaxed. With the rise in prices and the burden on the general public, anything but relaxation is the order of the day. But the economic outlook does not show a trough as deep as in the pandemic.

WORLD: Rainer Dulger, the employer president, speaks of the worst crisis in the Federal Republic to date. They accuse him of "scaremongering".

Hofmann: No research institute predicts that in 2023 we will slide into a situation that is as bad as in 2020. I don't see the danger.

WORLD: So everything is not that bad? The economy exaggerates?

Hofmann: Let's put it this way: The worst-case scenario of the forecasts we have would be a recession for the whole of 2023 with a minus of one to two percent. The best case is zero. In any case, we are not on the brink.

WORLD: Your optimism does not match the fears of the industry. There it says that production in Germany is no longer competitive with these electricity and gas prices.

Hofmann: Companies in the metal and electronics industry are largely passing on the explosion in raw material and energy costs. This is borne out by the producer prices, which have risen by 45 percent.

"Basically, nobody is behind the gas surcharge anymore," says WELT energy expert Daniel Wetzel. A gas price cap is now being discussed. But how should it be financed? Wetzel explains in which pots the federal government could still have money for it.

Source: WORLD

WORLD: Some large companies may be able to do that. But not small.

Hofmann: Companies that have a strong market position or whose products have an innovative edge can very well pass on the prizes. Even small businesses. It will be critical for companies whose production is very energy-intensive, which do not have a unique selling point and were already in extreme cost competition before the crisis.

WORLD: Are they on the brink?

Hofmann: They cannot survive in the market without government support. However, this does not apply to the industry as a whole, but to a maximum of ten percent of the companies in the sector. Energy cost subsidies are vital for them. I am disappointed that we are still waiting for concrete proposals here.

WORLD: You simply ignore large companies that are already stopping production, such as Arcelor Mittal at two locations, in your analysis.

Hofmann: No, but Arcelor Mittal is a European company that manufactures where energy prices are low. If significantly more favorable production conditions prevail in Belgium or France, then the German state must do something here.

WORLD: Relocating to locations where energy costs less is also an option for automakers like VW. If they produce the small models like the Polo in Germany, it could become so expensive compared to the Asian competition that it can no longer find buyers.

Hofmann: Well, the share of energy costs in the metal and electronics industry is on average between one and three percent. Of course, doubling that cost hurts. Nevertheless, this is manageable. At the current edge, however, we are confronted with a factor of four. If it is not possible in the medium term to contain the energy costs that are fueled by speculation today, then we have a relevant problem.

WORLD: So the general concern about German competitiveness is exaggerated?

Hofmann: To put it bluntly, yes. The energy prices, which are currently very high due to scarcity and speculation, cannot be the basis for long-term location decisions. In the medium term, energy will become more expensive, that's for sure. Companies must bring more energy efficiency into production. And we have to massively expand cheap regenerative energy.

WORLD: In this difficult situation, the collective bargaining rounds are pending. Wouldn't it be right to forego wage increases?

Hofmann: During the pandemic there were two rounds without a regular tariff increase. In the second quarter of 2022, i.e. after the start of the war in Ukraine, metal companies also recorded good business developments - in some cases the best in their company history. There is therefore no reason whatsoever for employees to forgo their share of this development. They cannot pass on the rising prices, as many companies seem to be able to do. And in the third quarter, not only one or the other company will report best-ever results. I'm sure.

WORLD: The "one or the other" is a good keyword. Who do you mean?

Hofmann: The 65 companies in our industry that are required to publish reported good operating results in the second quarter – with three exceptions.

WORLD: But these numbers are a reflection of the past, not the current problems.

Hofmann: The second quarter is already characterized by Russia's war of aggression. But it is true that if countermeasures are not taken quickly and vigorously now, the situation could worsen. But a mass exodus of companies is not imminent if we act. And that includes stabilizing private consumption.

WORLD: So the workers want their piece of the pie?

Hofmann: If you want to use this picture, yes. Above all, it is necessary for the increase in income to counteract the loss of purchasing power.

WORLD: If the uncertainties are so great, why don't the unions accept the one-time tax-free payment of up to 3,000 euros? Then the wage costs of the companies would not rise permanently and employees would still have a relief.

Hofmann: The payments - whether in monthly installments or once - are a help for both sides, and we will also use them. You will certainly be part of the negotiations. But one thing is also clear: With inflation of eight percent and a forecast of up to nine percent in the coming year, we need a permanent wage development if we don't want to lose purchasing power and thus our country's economic performance in the long term.

WORLD: You always talk about companies that have made great profits. What about those who just can't cope with the 139 percent increase in energy costs?

Hofmann: I see two necessities. On the one hand, the Economics Minister must finally make concrete proposals on the subject of energy cost subsidies. And quickly. That would help small and medium-sized companies in particular. The second point: Now that the electricity price brake has been decided, the question of a gas price cap remains. By the end of the month, the responsible commission should develop ideas on how to get the explosive development of gas prices under control.

WORLD: How do you rate the crisis management of the traffic light?

Hofmann: There is light and shadow. I am pleasantly surprised at how quickly it has replaced Russian natural gas. Green tick on it. I also think it's good that short-time work has been extended again. As far as corporate aid is concerned, I expect even more.

WORLD: Is the Economics Minister gripping enough on this point?

Hofmann: He's always hands-on. But it doesn't run that smoothly. This applies not only to the ministry itself, but above all to the cooperation in the traffic light. This starts with a uniform picture of the situation and ends with the sober statement that the debt brake threatens to become an accelerator for insolvency for households and companies. I see the conditions for a current emergency situation in 2023 as given.

Nationwide, tens of thousands are taking to the streets in another global climate strike. Fridays for Future calls for a special fund of 100 billion euros for climate protection. "Nuclear power is pretty much the most expensive thing you can do with energy," says Luisa Neubauer at WELT.

Source: WORLD

WORLD: Should the terms for the remaining three nuclear power plants be extended?

Hofmann: I wouldn't have a problem with letting them run until the existing fuel rods were worn out. As a result, no new nuclear waste is created. However, I am against reopening the fundamental discussion about longer maturities in general. Not only because I don't see any prospects in nuclear power, but because the energy that such a social debate would wear out should be used sensibly to remove planning obstacles to the expansion of renewables.

WORLD: Do you need a fourth relief package for certain population groups and economic sectors?

Hofman: Yes. We need energy cost subsidies for all households and for energy-intensive businesses. We have to hurry so that the next supply chain problem does not overtake us because companies in the value chains fail. And above all, we need quick, unbureaucratic solutions. Hardly any of these small companies have a certified degree. There have to be other access conditions to the aid programs. This is way too complicated.

WORLD: Do medium-sized companies need additional help in the next package?

Hofmann: I believe that a cap on electricity and gas and other measures that are in the pipeline would already do a lot. I sometimes have the impression that in such crises some business associations come up with ideas that they have had in the drawer for the past 15 years.

WORLD: What do you mean by that?

Hofmann: Well, for example the whole tax cut aria. In our view, now is not the right time for a debate about corporate tax cuts, which employers are trying to push.

WORLD: But a reduction in income taxes, as proposed by Finance Minister Christian Lindner (FDP), would relieve workers - especially those with good collective agreements in the metal industry.

Hofmann: Of course that would help. You won't see me opposing that. What bothers me, however, is that there is no counter-financing.

WORLD: You want to increase top taxes in return?

Hofmann: Yes, we want to increase the top tax rate to 49 percent, but allow it to take effect later. With that we would have the counter-financing together.

WORLD: Presumably you also want the so-called excess profit tax?

Hofman: Of course. In an emaciated form, she also comes. The government calls this chance wins. However, I could imagine extending the assessment basis to companies outside the energy sector.

WORLD: Who do you want to cup?

Hofmann: There are random profits at mineral oil companies. And of course that also applies to some of our sectors, such as parts of the armaments industry.

WORLD: That's pure arbitrariness.

Hofmann: The key question is: are we concentrating this excess profit tax on one industry, as is now planned? Or do we find a general formula that includes all companies? For example, you could always look at the last three years and say that anyone who earns 30 or 40 percent more in a crisis falls under it.

WORLD: With this approach, you choke off any innovation. Biontech, for example, who have done a lot against the pandemic with their vaccine, fell under your rule.

Hofmann: Every time you debate the topic, someone with Biontech comes around the corner. With the margins that the company has, that would be quite possible. And they also benefit from the infrastructure provided. If millions of people don't know how to pay their bills, I think the legitimacy for government action is given.