Friday, 17 April 2009

Scrap-bonus… the next abortive idea highlighted on this blog. Preconceived just across our western border by our biggest trade partner. The economists torn a strip off the new project, but even in spite of the pubic disapproval of the initiative, it gained staggering popularity and was prolonged until the end of the year.

Has any of you ever received a gift for which you had had to pay? That sounds only ludicrously, in fact occurs more often than you’d think. The scrap-bonus is nothing but a kind of gift given by the ruling grand coalition to the voters (general elections in Germany will be held this year). Attempts to bolster up the economy before elections are nothing abnormal, you probably are familiar with the theory of political business cycle – but the psychologists point at another aspect of the bonus – the Germans feel they pay too high taxes, the bonus is for some of them a substitute of supposedly due tax return. Pulling back some of the paid tax looks like a method of outwitting local IRS, they point out.

Undoubtedly, as everything financed from the public purse it’s their money, redistributed in an unfair way. The governmental advocates of the programme argue it’s in a way financed by the extra revenues from value added tax, but the independent experts have no illusions – to find funds to provide for the bonuses the government will have to either go into debt or raise the indirect taxes. Whatever it chooses, the taxpayers would be the ones to pay for it, sooner, or later.

Who’s to lose, who’s to gain? – The attempt to answer this question stirs up more troubles than it would seem. The middle class seems to be the key beneficiary of the undertaking – the lower tier’s representatives usually can’t afford to buy a brand new car, but still pay taxes, the richest citizens in the German progressive taxation system shell out, but probably won’t replace their cars with the new ones under the project, for obvious reasons. Among the beneficiaries one can see car dealers, who don’t have to grant discounts and can take the profits, workers employed in the car assembly plants – incidentally mostly abroad, where the autos sold under the programme (the smallest and cheapest ones) are produced.

Counting up the costs apart from 5 billions Euro earmarked for it one cannot omit costs of scrapping and all bureaucracy necessary to serve the whole process.

Why does the car industry? – the next question coming to my mind. Decision-makers point out every seventh position in the industry can be saved through it. Drop in orders for cars would trigger a ripple effect – firstly the car factories and assemblies are closed down then the falling demand hits its all their suppliers and subcontractors, such wave of redundancies reduces in turn the purchasing power of society and sends the economies sliding…

The German government has already made a decision to bring down the one of the thresholds in the taxation system. Since that will the taxpayer, whose annual gross earnings exceed sixty thousand Euro be classified as rich (these days monthly salary in Germany averages out around 3.100 Euro gross). As said by one journalist that’s the next measure to impoverish the German middle class.

Neither of the politicians cares what’s going to happen in the next year. Everybody agrees the bonus must not be prolonged, so in 2010 car sales are to slump! In eight months German economy will not have already recovered from the recession and the end of the scrap-action will inevitably be a blow…

Meanwhile thousands of German visit Poland to buy brand new cars in our salon (interesting why aren’t the forced to buy it in their homeland), additionally profiting from still favourable exchange rates. Meanwhile my mind boggles at the view of German scrap yards full of quite decent vehicles (car produced in 1999 unless it was crashed is still roadworthy!). Supporters of the bonus accentuate that key aim of the project is replacing the old cars with environmental-friendly ones (at what expense?!). Meanwhile other industries have already followed suit – one can get a discount when buying a new bicycle, washing machine, etc., provided he/she gives the previous item back to the shop. Meanwhile the old cars land in scrap yards instead of being sold to Poland and other new EU member states. Poland has already become a scrap yard – according to the recent report on used cars market in Poland, the ones at least ten years old account for almost a half of the registered vehicles (exactly 44,21% - data from March 2009, provided by Samar). If such bonus was introduced in Poland, every second car-owner could get such bonus, but knowing our consumers’ habits only twenty per cent would be able to lay out the remaining sum in cash… Thank God our government keeps away from such unreasonable methods of stimulating demand…

To my mind… Except for the thoughtless waste of public money, which is taxpayers’ money in fact, scrap bonus is an unfair redistribution of common income. I wouldn’t like to finance from my money the purchase of a new car made by my neighbour. If he wishes to buy it, may he pay for it!

But on the other side of the coin there are the ones who really deserved. If somebody buys always a brand new car, maintains it for more than ten years, he should get it… For persistence!


Anonymous said...

Some interesting ideas here, Bartek.

Michael Dembinski said...

A ludicrous idea. In the UK it has been roundly poo-pooed by consumers who see it as one big con. The biggest lie about this is that the scapping bonus is there to 'help the environment'. Utter rubbish. There's no better way of wrecking the environment than to change cars every three-four years rather than to keep old ones going for as long as possible. We should all consume less, waste less.