Make it easier for parents to choose the working hours they want. Women’s relatively short working hours result in a large gender earnings gap and underutilisation of their skills.
Actions taken: In 2017, a new investment program for expanding and improving childcare worth EUR 1.1 billion until 2020 was launched. As a result of continuous efforts to increase full-day primary schools, the proportion of such schools has reached more than 50% in 2017. Further spending increases on full-day schooling and financial support for the federal states (“Länder”) to improve the quality of childcare are foreseen in the government’s coalition agreement. The tax advantage for married couples, while being unchanged, is distributed more evenly between partners since 2018 and a 2017 reform forces large companies to be more transparent about how women’s wages compare to those of male colleagues.
Recommendations: Further expand full day high-quality primary education. Raise quality standards in childcare and early childhood education. Further lower the tax burden on the wage income of second earners. Increase the minimum amount of time, from the current two months, that the second parent has to take parental leave, for the couple to receive the maximum leave entitlement.
Strengthen skills to cope with technological change. Workers, particularly from weak socio-economic backgrounds, need to develop stronger cognitive and digital skills to adapt to technological change.
Actions taken: In 2017, the government increased the funding to support financially weak municipalities to invest in school infrastructure. It also plans to invest EUR 5 billion until 2021 in digital equipment of schools. The government enacted a law in 2018 to provide more financial support and counselling for lifelong learning and is putting in place a national lifelong learning strategy to address the skill needs due to technology changes.
Recommendations: Strengthen general education within vocational schools while maintaining the strong labour market orientation of vocational education and training. Offer more training programmes for the modular acquisition of qualifications in lifelong learning and foster the recognition of skills acquired on-the-job. Strengthen financial support and counselling for unskilled adults to obtain professional qualifications.
Reduce tax wedges on labour income and shift taxation towards less distortive taxes. The tax burden on low labour income is high while there is room to increase taxation on consumption, environmental externalities, real estate and capital income.
Actions taken: Public pension contributions were lowered by 0.1 percentage points in 2018 and the average of contributions for social health insurance providers fell in 2018. The wage range that benefits from reduced social security contributions has been extended to EUR 1 300 (from previously EUR 850).
Recommendations: Lower social security contributions, especially for low-wage workers. Update real estate tax valuations and apply the taxation of capital gains to residential real estate. Eliminate reduced VAT tax rates, such as on hotel services. Raise the tax rates applying to household capital income towards marginal income tax rates applying to other income sources. Phase out tax expenditures for activities that damage the environment and gradually adjust energy tax rates according to carbon intensity. Introduce taxation of NOx emissions.
Promote better technology diffusion and better resource allocation. Limited firm creation and barriers to competition, including extensive state control of large companies in key sectors, are holding back productivity growth.
Actions taken: In 2016, the government allowed the use of foreign IMSIs (identification numbers that allow for device recognition and network routing) in Germany as well as the use of German IMSIs abroad. It also allowed mobile service providers that do not own the wireless network over which it provides services to acquire IMSIs. Those measures are expected to enhance competition in the German mobile market and facilitate diffusion of the Internet of Things. One Landesbank was privatised in 2018 as required by the EU Commission under state aid rules.
Recommendations: Reduce restrictive regulation in the professional services and government ownership in business sector activities. Ease the conditions for bankrupt entrepreneurs to be discharged of debt after three years, while maintaining adequate safeguards for creditors. Create a one-stop shop to process all procedures for starting up a company online.
1Close the infrastructure gap. Limited access to high speed Internet in rural areas and to affordable housing in dynamic economic centres, as well as local infrastructure gaps in financially weak municipalities are holding back stronger and more inclusive growth. Pollution from transport and road congestion negatively affects human health and productivity.
Recommendations: Further strengthen public investment in high-speed broadband networks and low-emission transport infrastructure. Improve housing supply in dynamic cities fostering densification in urban areas, for example with incentives for compact development on brownfield sites. Provide more support for good municipal investment projects, by strengthening administrative capacity, especially in municipalities burdened with high spending mandates.
