11 December 2024 – Saudi Arabia is setting the course for the post-oil era with a comprehensive investment offensive worth around 3.3 trillion US dollars by 2030. And German Chancellor Olaf Scholz continues to hand out election campaign gifts with his proposal to reduce the already reduced VAT on basic foodstuffs. What a real boost for the German economy could look like.
Saudi Arabia in a phase of economic transformation
Saudi Arabia is setting the course for the post-oil era with a comprehensive investment offensive totalling around 3.3 trillion US dollars by 2030. The national investment strategy, launched in 2021, promotes the expansion of infrastructure, industry, technology and healthcare infrastructure. The kingdom is thus responding to the expected peak oil demand at the beginning of the 2030s and sustainably strengthening its economic power.
Strategic projects in Saudi Arabia worth billions should ensure full order books
The positive effect is already evident: the Saudi stock market, which is heavily characterised by banks, commodity and energy companies, has recently outperformed its regional competitors. This momentum could continue if the strategic billion-euro projects in Saudi Arabia generate numerous orders in the coming years, particularly for companies in the infrastructure and technology sectors.
Is the German Chancellor trying to cut taxes in the wrong place?
Even though German Chancellor Olaf Scholz’s coffers are already empty, he continues to promise one-sided and clearly electoral financial aid. While on Monday it was election gifts and billions in taxes for German steel manufacturers, whose employees were once among the core voters of the Social Democrats (SPD), on Tuesday it was the next dip into the empty coffers.
Purely an election campaign gift: VAT reduction on food
A reduction in VAT on food from 7% to 5% is now to be implemented. As with his other presents, the Chancellor does not have a majority in the Bundestag for this. But it looks good in the election campaign. However, this supposed election campaign aid for the lowest earners in Germany is not a real boost for the ailing domestic economy.
After all, companies ultimately decide for themselves whether to adjust their prices or pocket the 2% leeway. Food manufacturers and massively over-subsidised farmers were among those who benefited most from the galloping inflation and raised the prices of basic foodstuffs much more than necessary.
But instead of proposing really sensible measures to strengthen the entire value chain and the end consumer, the Chancellor only comes up with ideas that look good at first glance without a majority in the Bundestag. But if these are shot down, the SPD can of course exploit them in the election campaign.
Sustainably strengthening the entire value chain
Instead of a marginal change in basic foodstuffs, a VAT reduction on the purchase of a new private car from a manufacturer based in Germany would be an important boost for the economy as a whole. This would not only boost sales for the struggling German car makers, but would also ensure new orders and more turnover along the entire value chain. This would preserve jobs, create new ones and also make room for important consumption in other areas.
Pan-European solution possible
It would also be conceivable to think about this on a pan-European level and, for example, launch an EU-subsidised 0% financing scheme for private vehicles that can demonstrate a certain minimum value added in the European Union. It doesn’t always have to be an interest rate cut by the European Central Bank across all sectors.
Provided, of course, that these tax cuts actually reach the end consumer. Otherwise, they would just be hidden subsidies, which steel manufacturers and farmers in Europe and Germany already receive in abundance.
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