DM Monitoring
BERLIN: German consumers remain gloomy ahead of the traditionally big-spending Christmas season and a temporary reduction in sales tax worth up to 20 billion euros has failed to get them into shops or online — even when companies have passed it on.
The six-month cut in value-added tax from 19% to 16% was the centrepiece of a 130 billion euro ($155 billion) stimulus package launched by Finance Minister Olaf Scholz in June to drag Europe’s biggest economy out of a pandemic-induced slump.
Those measures, including cash handouts for parents and incentives to buy “green” cars, helped fuel growth of 8.5% in July-September, a big rebound from the previous quarter’s unprecedented 9.8% plunge.
But households remain focused on savings while many firms have used the VAT relief to shore up their battered margins rather than lowering retail prices, data and interviews show.
“Even if I wanted to spend more on the things that I like such as travelling and going out, I simply can’t right now due to the lockdown,” said Berliner Philipp von Bremen, 42, who worked reduced hours in the film industry during the pandemic.
“So I’m definitely spending less than normally.”
HELP YOURSELVES
The German subsidiary of U.S. gym equipment manufacturer WaterRower is among companies that did not cut prices, instead adding giveaways such as free cleaning packs to purchasers of its home rowing machines.
“We didn’t pass on the VAT reduction through lower prices. That would have been too much administrative effort for six months,” said managing director Dominik Kuprecht. WaterRower did well during the spring lockdown as gym closures lifted demand. But higher import tariffs put pressure on the balance sheet, which it used the VAT relief to help offset at least partly.
“We got pulled into the transatlantic trade dispute as the European Union decided to put U.S. manufactured trainers onto its list of countermeasures in the aircraft subsidy row,” Kuprecht said.
Tariffs rose from 2.5% to 27.5%, forcing WaterRower to hike prices by up to 20%. With other companies affected by the pandemic, especially in the hard-pressed services sector, also using the VAT cut to help themselves, Germany’s central bank has estimated that nearly 40% of the relief was not passed on to consumers.
