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Carsten Brzeski's blog

Germany: Blueprint

Last Friday, the OECD presented a set of possible policy measures to structurally improve Germany’s growth potential.

For those really interested in an economic platform for the upcoming elections, the OECD released a possible blueprint last week. In its annual “Going for Growth” report, the OECD acknowledged the positive performance of the German labour market but presented a series of recommendations for new policy steps.

According to the OECD, education outcomes remain closely linked to socio-economic background and education spending on disadvantaged students remains relatively low. Although the German educational system in theory offers plenty of opportunities for all kind of backgrounds and skills and does not have a public and private school system, the OECD calls for better transitional paths to open different educational levels and streams at several stages during a school career. Female labour market participation has been a continuous problem, in particular the low average working hours. Even though there has been some improvement in childcare availabilities, the OECD still calls for more additional childcare facilities but also for a lowering of the tax burden on the second earner. In particular, the latter touches upon a very sensitive point in the German tax system, which still has built-in incentives for one partner in a family to stay at home.

Another well-known recommendation by the OECD is to reduce regulatory barriers to competition in services and to lower labour taxation. Also, the OECD concluded that differences in employment protection between permanent and temporary contracts were still significant.

As regards infrastructure spending, the OECD acknowledged an increase in government spending on infrastructure since 2015. However, additional measures are needed, including for example the roll-out of broadband internet but also further high-speed technologies.

A final recommendation targets another sensitive point in the German economy (and society). In order to reduce red tape, the OECD recommends to improve governance or to privatise government stakes in the Landesbanken, car industry, telecommunication and postal services.

All in all, the OECD’s recommendations are not new. However, six months ahead of the elections, this set of possible economic policy measures could get more attention than normally. For those political parties which are still looking for an economic platform, the OECD has presented a first blueprint.