Super Depreciations – The recession remedy? Short Cut Highlights

The war in Ukraine is fueling fears of recession. Would now be the time for the super-depreciations included as an investment premium for “climate protection and digital assets” in the traffic light coalition agreement and have been postponed in the meantime? What effects does the government expect from the bonus? What is the argument for focusing the measure on digital and climate? When would be the right macroeconomic time for such write-offs? And: Is the foreseeable dampening of the economy due to the Ukraine war a reason to accelerate the concession for investments?

About all this discussed Clemens Fuest (ifo), Markus Herbrand (FDP), Sandra Detzer (Bündnis 90/ Die Grünen) and Achim Truger (University Duisburg-Essen) in our last Short Cut.

Main takeaways

Markus Herbrand considers digitization to be the basis for achieving many other points included in the coalition agreement and that is why it is fundamental that such instrument has digitalization as one of the key areas, together with decarbonization. He appreciates however that the profoundly changed circumstances have pushed discussions about the adoption of super-depreciations on the background, but he is sure that the question is not whether they will be adopted but when.

Sandra Detzer highlights that Germany had good prospects this year in terms of economic development, but the war has changed the situation deeply and has exacerbated problems that already existed due to the pandemic, like the ones linked to supply-chains and increasing inflation.

At the same time, we have to make sure that we do not on the other side strengthen investment problems and create even more demand bottlenecks. In sum, Sandra Detzer believes the chance might come to apply those super-depreciations, but there will be a need to re-discuss what form they will take in light of the changed economic conditions.

Professor Fuest is also skeptical about the practicability of such an instrument in the current situation given the problematic condition of supply-chains. He suggests that it would be wiser to help companies that struggle today but prove to have been profitable in the past. Once the issue with the supply-chains is recovered we can consider super-depreciations again – be it as a steering or stabilization tool.

Professor Achim Truger also supports the idea that the application of such an instrument is rather a matter of timing. He identifies clear advantages: you could relieve companies and above all stimulate investment through a sensible instrument that has good chances of achieving those objectives, and that at the same time does not burden the public budgets, at least in the medium term.