With the Growth Opportunities Act, a law is soon to be passed to promote investment in Germany and thus counteract economic crises. But can the planned measures deliver what they promise? The new GBP Monitor shows that many companies take a critical view. Less than 20 per cent of respondents state that the planned measures will lead to earlier or more investment in their own company. The vast majority do not expect any positive effects for their own investment activities or are unaware of the measures.
In August, the government draft of a long-awaited law was passed: the Growth Opportunities Act. The bill is currently being discussed and revised in the Bundestag's committees and working groups before it is due to be passed by the Bundestag on 17 November 2023. The new study by the German Business Panel could provide important information for the revision. After all, in order to assess whether the proposed measures will actually lead to more investment, it is crucial to include the perspective of companies. This is why researchers from Paderborn University and Humboldt-Universität zu Berlin, together with the German Business Panel team (University of Mannheim), asked companies in Germany how five of the proposed tax measures would affect their investment activity.
The measures analysed include
- the extension of the temporary declining balance depreciation for movable assets of 25 per cent until the end of 2024;
- an improvement in special depreciation for small and medium-sized enterprises (SMEs), whereby companies can write off 50 per cent of investment costs immediately in the year of acquisition or the following four years, instead of the current 20 per cent;
- an investment premium of 15 per cent for climate and environmental protection measures;
- an increase in tax incentives for research to up to 3 million euros (4.2 million euros for SMEs) and
- an extended loss carry-back, whereby losses can be offset against profits from the previous three years.
The majority of companies see no incentive to invest in their own business
The surprising result: on average, only around 13.5 per cent of companies see the selected tax measures as an incentive to bring forward investments and/or invest more. Improved depreciation options and the investment premium for climate and environmental protection measures received the greatest approval at around 17 per cent. The extended loss carryback (9.1 per cent) and, above all, tax incentives for research (7.6 per cent) are only an incentive for a few respondents to invest more and/or earlier.
The research team explains the results with regard to tax incentives for research as follows: "The respondents are primarily small companies for which research and development often only play a subordinate role," says Prof. Dr Dr h.c. Dr. h.c. Caren Sureth-Sloane from Paderborn University. "Experience reports also indicate that applying for research funding can be associated with high verification requirements and a high administrative burden, which is particularly difficult for small companies to manage."
The limited expected impact of the measures is surprising
However, it is worrying that around a fifth to a third of companies are completely unaware of individual measures. This also applies to measures that are primarily aimed at small companies, such as the increase in the special depreciation allowance from 20 to 50 per cent. Almost 30 per cent of the companies surveyed, a large proportion of which come from this group, are unaware of this tax measure. However, Sureth-Sloane is certain: "Simplifications, better application aids and information can help here and should be planned from the outset."
Overall, the researchers are surprised by the limited impact of the measures on companies' investment activity. "Previous surveys have shown that the majority of companies take taxes into account when making investment decisions. Tax incentives should therefore stimulate investment activity, provided there are no other obstacles," explains Prof Dr Ralf Maiterth from Humboldt-Universität zu Berlin. "The investment effect of accelerated depreciation in particular is typically seen as extremely positive by companies. With regard to the investment effects for their own company, the companies in the current survey are much more reserved in their positive judgement." However, the survey also shows that the size of the companies and whether they are currently expecting profits or losses are decisive factors when assessing the measures. Companies that expect to make a profit or have more than five employees indicate a higher investment impact on average. At least 15 per cent of those surveyed stated that they wanted to make more or earlier investments as a result of the reform.
Dissatisfaction with current economic policy is high
It cannot be ruled out that the general dissatisfaction of companies with current economic policy also plays a decisive role in the assessment of the measures. Around 71.9 per cent of respondents are dissatisfied with the federal government's economic policy. In addition, companies feel that they are exposed to a high tax administration burden - also with regard to the measures of the Growth Opportunities Act.
You can find the "GBP Monitor: Business trends in November 2023" here: https://www.accounting-for-transparency.de/wp-content/uploads/2023/11/gbp_monitor_2023_11.pdf
Further information on the current GBP Monitor survey
All researchers are part of the Collaborative Research Centre TRR 266 Accounting for Transparency, of which the German Business Panel (GBP) is also a member. The GBP, which is based at the University of Mannheim, surveys more than 800 companies every month on the business situation in Germany, collecting data on 1) expected changes in sales, profits and investments, 2) business decisions, 3) the expected closure rate in the industry and 4) satisfaction with economic policy. In addition, reports on particularly topical issues are submitted and analysed each month by other TRR 266 research teams. This survey on the Growth Opportunities Act was submitted and analysed by researchers from Paderborn University and Humboldt-Universität zu Berlin.
Background information on the German Business Panel
The German Business Panel is a long-term survey panel of the DFG-funded supra-regional project "Accounting for Transparency"(www.accounting-for-transparency.de). The Collaborative Research Centre (CRC) "TRR 266 Accounting for Transparency" started in July 2019. In May 2023, the German Research Foundation (DFG) decided to extend the CRC for an initial period of four more years. It is the first CRC with a focus on business administration. Over 100 researchers from nine universities are involved in the SFB: Paderborn University (host university), Humboldt-Universität zu Berlin and the University of Mannheim, as well as researchers from Ludwig-Maximilians-Universität München, Goethe University Frankfurt am Main, Frankfurt School of Finance & Management, WHU - Otto Beisheim School of Management and the University of Cologne. The researchers are investigating how accounting and taxation influence the transparency of companies and how regulations and corporate transparency affect the economy and society. The SFB's funding volume amounts to around 18 million euros.
