By ICN GroupChemical, July 17, 2018

German chemical industry needs better policy framework and fiscal incentives, VCI

The trade body calls upon the German federal government to submit in autumn a concrete bill for fiscal R&D incentives

In its half-yearly stocktaking, the German chemical industry association Verband der Chemischen Industrie (VCI) reports that whereas the German chemical-pharmaceutical industry developed positively in the first half of 2018, the outlook for the remainder of the year is less optimistic. The report says that for the January-June 2018 period sales increased by 5.5 percent, it projects a 3.5 per cent increase in the latter half of the year because of the looming trade war between the USA, China and the EU, the consequences of a hard Brexit and the stormy oil price development, among others.

However, VCI also points at government’s lack of positive industrial policy and poor fiscal incentives for research and innovation as some of the major impediments hampering the sector. The report says that the more cautious expectations of companies for the second half 2018 are also due to the lack of positive industrial policy impulses from the federal government that could counteract the growing risks to the economy. There is a need for action especially regarding innovation.

The report further points that in a world of global competition, Germany needs a faster innovation speed to safeguard prosperity and employment through qualified jobs. According to VCI President Kurt Bock: “Just as with migration and integration or demographic change, the ability to innovate is about the future of our country. But this seems to be increasingly moving in the background among the political priorities in Berlin.”

By way of example, Bock mentions the introduction of fiscal incentives for research and development (R&D) in Germany which the VCI and many other industry associations and scientific organisations have been demanding in vain for years. Today, almost all industrial nations worldwide – including large economies like the USA, Japan and Canada – as well as 24 out of 28 EU Member States grant such incentives for companies, in order to boost their innovation strength.

This criterion is significant in the choice of locations for investment in research-intensive projects, as is demonstrated by Austria. In the Alpine Republic, the R&D spending has a 3.14 percent share in the gross domestic product (GDP). Meanwhile, Austria holds one of the top places in the EU where research intensity is concerned – outranking Germany (2.93 percent). With the successful effect of this instrument on jobs and location choices, Austria raised in early 2018 its tax credit by another 2 percent to now 14 percent of the research spending.

VCI President Bock calls upon the German federal government to submit in autumn a concrete bill for fiscal R&D incentives. He emphasises: “The credibility of political action is at stake – not only in our industry.” With a strong increase in tax revenue in the present legislative period, the financial scope in the federal budget is larger than ever before.

He says, fiscal incentives are an important instrument for the R&D spending to reach 3.5 percent share in GDP by 2025 in Germany, as is laid down in the government coalition agreement. This target means a real effort for economy which raises two thirds of all funding. The chemical-pharmaceutical industry supports the 3.5 percent target. Currently, the industry invests just under 11 billion Euros annually in research.

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