#WirMachen Mittelstand

BTW21 | POSITION | MITTELSTAND

#WirMachen Mittelstand

Economically, Germany has a model of success: the Mittelstand with its numerous family-owned companies. Ownership and control as well as leadership and responsibility are often combined in the best possible way. Creators, inventors and visionaries point the way forward with entrepreneurial spirit, reliability, discipline and a sense of proportion. Their most important goal is usually to hand over the company to the next generation and to preserve good jobs in the region.

#WirMachen Mittelstand

The industrial Mittelstand makes Germany successful Whether active on their own or integrated into efficient, cross-industry value-added networks, SMEs offer innovative systems, versatile and sustainable products, suitable services and solutions that are demanded worldwide, but mostly developed, implemented and first used in Germany.

The Mittelstand and family-owned companies of all sizes provide attractive jobs and good training – both in cities and rural areas. They assume responsibility far beyond the company and its workforce. They secure revenue for the tax system and social insurance. Locally, they are committed to cultural, sporting and social activities. They contribute to more equivalent living conditions, to social cohesion and political tolerance.

Diverse corporate structures across different sectors remain the driving force of the dynamic competitive advantages of German industry. They contribute to the resilience of the social market economy as a model for a successful economy and for a society worth living in. At the same time, small and medium-sized enterprises, while loyal to their home location, face international competition and suffer particularly from home-grown burdens.

For a future-proof Mittelstand, Germany needs... ...more financial scope for investment in innovation and jobs Strengthen security of supply and reduce electricity costs: High energy costs jeopardize production, investment and jobs in Germany. In order to reduce electricity costs, the current cap on the EEG surcharge is insufficient. The EEG surcharge must be abolished as seamlessly as possible whilst reducing grid charges by a federal subsidy and extending the tax cap for energy intensive users (“Spitzenausgleich”) beyond 2022. The goal of sourcing green electricity at competitive costs also includes strengthening the steering effect of the CO2 price in taxes and establishing internationally comparable CO2 prices.

Modernize the tax system: Twelve years without reforms have eroded the attractiveness of Germany as a business location. A future-oriented tax policy strategy is overdue. The overriding goals should be a sustainable tax system, a competitive effective tax burden of no more than 25 percent and a uniform corporate tax rate. More specifically, retained profits of partnerships must be relieved, the solidarity surcharge must be completely abolished, in the light of Corona-distortions the exemption rules of inheritance tax must be adjusted to practical needs and the exit taxation has to be modernized. Those, who create further financial and bureaucratic burdens through property taxation endanger investments, jobs and businesses. Everyone benefits if excessive tax bureaucracy is reduced - for example in the case of time-consuming tax audits or in view of long retention periods. Conversely, innovations will be supported if the research allowance is further strengthened, project funding is made more dynamic and private venture capital can be deployed more easily.

Permanently limit social security contribution rates: Based on current law, the contribution rate is expected to rise to nearly 50 percent by 2040. This jeopardizes international competitiveness and economic development, has a negative impact on local jobs and investment, and puts pressure on social cohesion and intergenerational equity. The contribution rate must be permanently limited to below 40 percent.

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#WirMachen Mittelstand

Raise the statutory retirement age in the foreseeable future: It was right and necessary to gradually raise the statutory retirement age to 67 by 2029. A higher standard retirement age will help to limit the decline in the potential workforce. As life expectancy is fortunately rising, the retirement age must also rise – especially in view of contribution payers. If we want to distribute the costs of an aging society in a way that is fair to all generations, the standard retirement age must be linked to life expectancy.

...less bureaucracy Regulate better and reduce the bureaucratic burden: Due to limited human and financial resources, SMEs rely on an efficient and non-bureaucratic legal framework. Brussels and Berlin should apply an "SME test" effectively and consistently, monitored by "SME commissioners". National gold-plating of European requirements - for example on climate and environment issues jeopardizes the uniformity of rules in the EU single market and harms Germany as a business location. In addition to early involvement of the business community, regulatory sandboxes (“Reallabore”) can help to test the practicability of complex regulations and to realistically estimate nonrecurring and recurring compliance costs. Disclosure requirements should be designed as unbureaucratic and proportionate as possible. This way, the transparency of entrepreneurs can be limited.

Speed up planning and approval procedures: Increasingly long and complex planning and approval procedures are a significant obstacle to SME investment and job creation in the region. However, the personnel situation in the responsible authorities is deteriorating and the willingness to initiate legal action is increasing. Companies need reliable and swift procedures that do not require the involvement of experts or lawyers - in the interest of targeted investments and profitable jobs.

Create a digital state: There is enormous potential in e-government to relieve the bureaucratic burden on companies. As "power users" of the administration, the business community must be more intensively involved in the implementation of the Online Access Act (“Onlinezugangsgesetz”).

An integrated platform for business-related administrative services, functioning register matching and a digital business account that observes the once-only principle promise attractive ways forward.

...diverse corporate structures across regions and industries Secure access to financing: SMEs and family businesses need stable and reliable access to finance for investment. Regulatory initiatives on sustainable finance and the European taxonomy regulation must not restrict the liquidity of companies that are often in the midst of the digital and green transformation. Unbureaucratic access to funding is needed in order to provide manageable support for companies and to preserve their capital resources. The finalization of Basel III must also take entrepreneurial practice into account.

Attract skilled workers from abroad: Practical problems often make the immigration of skilled workers difficult, and in some cases even prevent it. These problems include long waiting times at diplomatic missions abroad, complicated and lengthy procedures, and suboptimal cooperation between various authorities and agencies. For accelerated processes and smooth cross-agency communication , a consistent electronic file system is needed, as well as a comprehensive cross-agency

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#WirMachen Mittelstand

IT system. It also remains crucial to bundle all tasks relating to qualified labour migration in specialized immigration authorities.

Support education and training: More and more digitization is leading to new software deployments, work methods, career paths, and new opportunities for productive, well-paying jobs. Targeted vocational training can fully leverage this potential. Employees receive additional incentives when their expenditures for vocational training programmes decrease.

Strengthen rural regions: Many medium-sized companies, hidden champions and global market leaders are rooted in rural areas. As employers, trainers, taxpayers, and promoters of art, culture and sports, they contribute to prosperity, cohesion and tolerance in a vibrant society. Those who ensure attractive business conditions with efficient access to urban areas keep investments at the local level and prevent employees from moving away.

...efficient supply chains and resilient value-added networks Advance digitization across the board: Many SMEs are struggling with scarce resources such as budget, time and digital expertise. A prerequisite for digital activities, including those in crossborder value-added networks, is the expansion of fiber-optic networks with the greatest possible coverage. Rural regions must not be left out. Moreover, smart data policies - based on strengthened data sovereignty and justified trust in digital technologies and cyber-resilient IT solutions - remain critical to success.

Promote research and development: Technology and innovation policies at national and European level need to be closely interlinked with industrial policies for SMEs and family businesses to stay competitive. Research collaboration should be efficient and less bureaucratic. Consistent public funding must be made available - beyond improving the research allowance that is already in place.

Develop the potential of industrial start-ups: Targeted cooperation between established SMEs and start-ups is an important engine for growth that, in the best case, advances both sides. A vibrant market for venture capital and an ecosystem of science, research and local companies where ideas flourish, can help to leverage potential synergies. Investments in joint operations between start-ups and established SMEs increases with lower bureaucratic, regulatory and legal barriers.

...a functioning Europe and open markets worldwide Make the EU fit for the future: Merchant virtue, engineering passion and pioneering spirit in German SMEs need a future-oriented Europe. Only a fully functioning EU single market offers exportoriented companies open borders. Barriers to products, services, capital and employees (including A1 certificate procedures) must be removed. Free movement across all European borders must be organized securely, uniformly and reliably. In terms of bureaucratic relief and targeted support, SMEs and family businesses should be firmly anchored on the political EU agenda: it is time to reform the SME definition, to broadly consider "mid-caps" and to closely coordinate the EU strategies for industry, foreign trade, SMEs and the Green Deal. Berlin, in turn, should ensure a uniform legal framework in the single market - without national gold-plating of EU requirements.

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#WirMachen Mittelstand

Intensify foreign trade: Many SMEs and family businesses are globally interlinked through the division of labour, knowledge exchange, investment and trade in cross-border supply chains and value-added networks. In Germany, one in four jobs depends on exports, and in the German industrial sector more than one in two jobs. Therefore, a sustainable foreign trade policy at national and European level is essential - based on multilateralism, openness and fair competition. Complicated customs procedures in the EU must neither be a barrier to market access for companies from third countries nor an obstacle to exports. Better access requires comprehensive trade agreements with strategic partners, including specific SME chapters. An effective WTO remains indispensable for rules-based trade.

Imprint Federation of German Industries (BDI) Breite Straße 29, 10178 Berlin Phone: +49 30 2028-0 www.bdi.eu

Contact German Mittelstand and Family Businesses Fabian Wehnert Phone: +49 30 2028-1470 f.wehnert@bdi.eu German Mittelstand and Family Businesses Vanessa Wannicke Phone: +49 30 2028-1434 v.wannicke@bdi.eu

BDI document number: D 1347

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