Government can use the taxation to boost the car

Government can use the taxation to boost the car
industry and it can take place either by increasing or reducing the taxes. Increasing
diesel or gazoline taxes, for instance, can push the consumer to exchange the
old cars by new electric ones, especially if EV are tax-free (as it is the case
for few years). On the other hand, reducing the taxes on EV will increase the
rate of production and sales of EV. Generally, reducing taxes will have direct
impact on consumer’s expenditure as previously mentioned.

      
II.           
Taxation

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In Germany the loose monetary policies apllied by the
ECB play a major role for the consumer’s expenditure. Low interest rate, which
is the current case, is good for borrowers because it cost them less to have
this money, but bad for savers because they will get a lower return on their
savings. On the short-term, with less constraints to borrow money, people tend
to spend more . While on the long-term, they will have to pay back all what
they borrowed. Therefore, the current policies are helping people to avoid
saving, not fear borrowing and spend more, which can have positive impact on
the car industry. As a result, such positive impact will be reflected on the
GDP.

        
I.           
Consumer’s
Expenditure

Looking at the circular flow of income, I will focus
on the consumer’s expenditure, taxation and exports.

Analysis – Circular Flow of Income

As for the relatively “new” electric
cars, Germany took some steps to be one of the leader in the EU following UK
and France. Germany is encouraging and motivating the replacement of diesel or
gasoline cars by electric ones through some fiscal policies. On October
25, 2012, the German parliament enacted these EV-related taxes: the tax
exemption of (pure) electric vehicles licensed before December 31, 2015 is
extended to 10 years (previously it was 5 years). This exemption is extended to
all battery electric vehicle classes. Pure electric vehicles licensed between
January 1, 2016 and December 31, 2020 will be granted 5 years of tax exemption.
Such easy fiscal policies, announced in 2012, had direct impact on the market.
Electric cars, registered in Germany, growth rate increased more than doubled during
2012-2013.

In 2016,
the auto sector listed a turnover of EUR 404 billion, around 20% of total
German industry revenue. It is home to 41 automobile assembly and engine
production plants with a capacity of over one third of total automobile
production in Europe. In 2016, domestic internal automotive industry R&D
expenditure is expected to reach EUR 21.7 billion, equivalent to 35% of
Germany’s total R expenditure. Around 77% of cars produced in Germany
in 2015 were ultimately destined for international markets. The most recent
exports, in Germany, are led by Cars which represent 11.4% of the total exports.
R personnel within the German automobile industry reached a level of just
about 110.000 in 2016. Around 808.500 are employed in the industry as a whole.

Germany’s
automotive industry is the number one in the EU in terms of production and
sales. It is accounting for around 30% of all passengers cars manufactured and
almost 20% of all new ones.  German car
manufactures produced more than 15 million vehicles in 2015, which is
equivalent to almost 20% of total global production. Car suppliers in Germany
represents 20% of the world’s 100 top automotive suppliers. OEM (Original
Equipment Manufacturer) sites located in Germany exceeded 40 sites. The
automotive industry is the largest industry sector in Germany.

Germany – Automotive Industry

 

Since
1998, the headquarter of the European Central Bank (ECB) was established in
Frankfurt – Germany. The ECB is the central bank for the euro and administers monetary
policy of the eurozone, and is one of the largest currency areas in the
world. The monetary policy decisions, taken by the Governing Council of the ECB, are
taken to ensure price stability within the EU zone as a main objective. The
benchmark interest rate In the Euro Area Interest Rate reached its highest
figures exceeding 4% in 2000 and 2008. Since early 2016 and till present, it is
stable at the lowest figures 0%. Money supply M3 in Germany is reaching
the 3,000 EUR Billion beginning of Q4 2017. The government spending growth rate
is overall steadily increasing. Looking at the overall picture, the ECB ultra-loose
monetary policy are not very welcomed in Germany especially in front of the
rising inflation. German Finance Minister has asked the central banks to
gradually exit their loose monetary stances, as they are negatively impacting
the EU zone generally and Germany of course.

Germany has a
steady and reliable fiscal policy, which is contributing to positive
economic trends and stability not just for it but in Europe. It is influencing
its remarkable low unemployment rate. The general government budget has
fulfilled the requirement of being close to balance every year during the
current legislative term. Fiscal policies
targeted towards growth-friendly consolidation have durably boosted confidence
and laid the foundation for stable macroeconomic conditions, future
investments, and jobs. In 2016, public budgets generated a surplus of 0.8% of
GDP overall. By adopting a federal budget that contained no new borrowing, the federal government played a decisive role in this achievement. Having
peaked in 2010, the general government debt-to-GDP ratio has declined
considerably in the intervening period. The personal income tax rate increases
progressively according to the wages ranging from 0% to 47.5%, which has not
been exceeded for more than 10 years. The government spending in Germany
was last recorded at 44.3% of GDP in 2016. It has been slowly fluctuating
around this percentage. The stable fiscal policies implemented in Germany are
fuel for the improvement and nourishment of the macroeconomic conditions.

Germany is
ranked in the top 5 biggest economies in 2017. It is ranked in fourth position,
with a GDP at $3.4 trillion economy, which is representing 4.5% of the
world economy and accounted for 28% of the euro area economy according to the
IMF. GPD per capita is           reaching
$44 thousands and GDP growth rate is around 1.9% YoY. Looking at inflation rate,
it increased to 1.7% after remaining below 1% since 2013.  Unemployment rate is significantly
decreasing below average figures reaching 3.6%, putting Germany as one of the
top lowest countries for unemployment in the EU.  In 2016 exports in Germany were at $1.32T,
making it the 3rd largest exporter in the world. During the last five years the
exports of Germany have increased at an annualized rate of 0.6%, from $1.4T in
2011 to $1.32T in 2016. The most recent exports are led by Cars which represent
11.4% of the total exports of Germany. As for the imports in the same
year, Germany imported $1.05T, making it the 3rd largest importer in the world.
During the last five years the imports of Germany have increased at an
annualized rate of 0.4%, from $1.18T in 2011 to $1.05T in 2016. The most recent
imports are led by Unspecified which represent 9.2% of the total imports of
Germany, followed by Cars, which account for 4.9%. As of 2016 Germany had a
positive trade balance of $273B in net exports. As of 2017, figures from
January to October 2017 show a trade surplus, which was registered at EUR 203.2.8
billion, down from EUR 208.6 billion in the same period of 2016.

Germany, officially
the Federal Republic of Germany, is a federal parliamentary republic in
central-western Europe. It includes 16 constituent states, covers an area of
357,021 square kilometers (137,847 sq. mi), and has a largely temperate
seasonal climate. With about 82 million inhabitants, Germany is the most
populous member state of the European Union, and ranks as the 16th most
populous country in the world. After the United States, it is the second
most popular immigration destination in the world.