DVFA monthly question May: DVFA Investment Professionals still cautious about the coalition agreement

Even before the final signing of the coalition agreement, DVFA asked its investment professionals how they assess its economic and financial policy aspects. “Germany is facing enormous challenges and now has both the duty and the opportunity to set the course in the right direction. This makes expectations of the new federal government all the greater, especially when it comes to reforms for the economy and capital markets,” says Roger Peeters, Deputy Chairman of the association.

A work with gaps and an unclear overall effect

On 144 pages, the coalition agreement contains a multitude of details and announcements, including the phrases “we will” and “we want” 379 times alone. In terms of content, only one in ten investment professionals is positively surprised and satisfied with the coalition agreement in terms of progress for the economy and capital market. Almost one in two (49%) have a mixed view of the result, as although some progress has been made, new problems have also been created. A good third of respondents (35%), on the other hand, missed important topics and concrete statements. Only 6% did not have a clear opinion on the coalition agreement in its entirety.

Critical influence of the previously agreed special debts

Even before the coalition agreement was passed, the “old” Bundestag passed an amendment to the Basic Law that allows for extensive government debt in so-called “special funds” in order to invest in armaments and infrastructure. The second question therefore concerned its effects on future government policy.

Here too, the critical-negative view of the investment professionals prevailed, albeit slightly. Around 45% of the experts surveyed expressed the view that urgently needed structural adjustments would not be tackled due to the new debt options; instead, further increases in social spending were to be expected.

In contrast, almost 36% view the special debt programs positively, as the combination of increased investment power and planned reforms is likely to get the economy moving again.

And almost one in five (just under 19%) see no connection between the two issues. Rather, the coalition agreement should be assessed separately.

Special depreciation allowances and reduction in corporation tax: mixed feelings

The special depreciation options for investments announced in the coalition agreement and the subsequent gradual reduction in corporation tax over several years are viewed ambivalently by DVFA investment professionals:

• 50% believe that this could be an important stimulus for investment and growth;
• for 47%, on the other hand, these announcements represent symbolic politics, with far too little changing structurally and in international comparison.
• only 3% currently see no major need for reform in tax matters

Private and state pension provision: the “pension gaps” in the coalition agreement

The DVFA also asked which capital market policy issues were missing or insufficiently addressed in the coalition agreement. Up to two answers were possible here.

• According to the total number of responses, a clear, coordinated concept for the expansion of equity-based pensions and funded pension provision was the most frequently missed topic (34%).
• In second place on the “search list” was the strengthening of private pension provision with 28%.
• The promotion of start-ups and venture capital (15%) followed in second place,
• the improvement of the tax framework for investors 13% and
• the harmonization of European capital markets with only 10% of responses

Overall impact of the coalition agreement on the economy: rather skeptical

• Only just under one in five (19%) of the DVFA investment professionals who responded expect positive impetus for the German economy, primarily through investments and relief, including in terms of bureaucracy.
• In contrast, almost half (48%) do not expect the coalition agreement to have any significant effects, as there is a lack of impact and bold reforms.
• In fact, 11% of respondents see negative effects, particularly due to the reform backlog and funding uncertainty.
• However, 22% believe it is too early to make an assessment, as implementation in practice is crucial.

Roger Peeters summarizes the results as follows: “Our survey results show that many of our members are still cautious and rather critical of the coalition agreement, while a robust minority has high hopes for it. Obviously, the agreement still leaves a lot of room for interpretation. We will have more clarity when the important issues are successfully tackled or not”.