Inflation compensation debate: Many concerns about one-off payments

How can the threatening wage-price spiral be averted? Chancellor Scholz proposes that the collective bargaining parties agree on one-off payments instead of permanent wage increases. Leading economists don’t think that’s a good idea.

The wage-price spiral – Chancellor Olaf Scholz is worried about this conceivable phenomenon. With an inflation rate of currently 7.9 percent, the trade unions could try to compensate for the price increases with high wage agreements. And that will fuel inflation – so the fear.

Chancellor Scholz would like to prevent that – and talk about it with unions and employers. His idea is that instead of agreeing on permanently higher wages, the bargaining parties should rather agree on one-off payments. The state could make them even more lucrative by keeping the one-off payments tax-free.

objections of the tariff partners

The SPD financial politician Michael Schrodi thinks that the one-time payment is a good thing to take a little pressure out of the inflation kettle and the price kettle. In combination with the state tax exemption, the high prices could be cushioned. This would prevent the feared wage-price spiral.

Next Monday, Chancellor Scholz wants to talk to employers and unions about this for the first time during the so-called concerted action. In the run-up to the meeting, the collective bargaining partners are cautious. Both refer to collective bargaining autonomy: Wage agreements are not agreed politically, but are a matter for employers and unions.

Fratzscher sees burdens for employees

In an interview with Bayerischer Rundfunk, Verdi boss Frank Werneke referred to the ongoing wage negotiations, for example for employees in the German ports. Werneke doesn’t think much of one-off payments: “We have to make sure that these permanently rising prices are also converted and converted into permanently effective collective wage increases.” One-off payments are just one-off effects that would not lead to a permanent increase in wages.

IG Metall and the police union made similar statements today. Even the President of the German Institute for Economic Research, Marcel Fratzscher, doesn’t believe in universal wage cuts. Because that would mean that workers in particular would bear the burden of the crisis.

Fuest fears deadweight effects

The President of the Munich ifo Institute, Clemens Fuest, takes a different view. He fears that tax-exempt one-off payments could fail to have the desired effect. It is legitimate that the government is trying to do something about inflation. But intervening so directly in collective bargaining is difficult.

“Especially because there is a risk that this will lead to strong deadweight effects and wage increases will not be much lower. And because the whole thing could also fuel inflation,” says the economist.

FDP: adjust tax rates to inflation

In the fight against inflation, ifo boss Fuest sees the European Central Bank as primarily responsible. You now have to be much more determined to raise interest rates. Energy imports would then automatically become cheaper if the euro exchange rate rose. According to Fuest, the state should hold back.

Even within the traffic light coalition, Chancellor Scholz has not yet received unrestricted support on the subject of one-off payments. While Green leader Ricarda Lang speaks of an exciting proposal, the FDP is rather critical. Group leader Christian Dürr thinks it would be better to adjust tax rates to inflation in order to permanently relieve the burden on employees. So there is still a lot to be discussed before the concerted action in a week.