Cutting VAT to Have Little Impact on German Surplus

Cutting Germany’s value-added tax rate from 19% would have only a limited impact on reducing trade surpluses that have been sharply criticized by US President Donald Trump, the country’s economics ministry said.

The comments followed a report in the Welt am Sonntag newspaper which said the German government was examining a possible reduction in the tax, a step recommended by several economists, Reuters reported.

A ministry spokeswoman did not deny the report but cautioned that such a move would “have only very limited effect on the current account balance,” and it would be more important and sensible to increase investment in Germany. The government continually reviewed economists’ recommendations and examined ways to reduce the surpluses, she added.

Germany faces a national election in September, making immediate changes to taxation policy unlikely. German officials say the country’s current account surplus stems from a variety of factors, including some beyond the government’s control, such as the price of oil or the euro exchange rate, as well as high demand for German products.

Chancellor Angela Merkel last month pushed back against renewed US criticism of German surpluses by President Donald Trump, who told EU officials that Germany was “very bad” on trade. She said she and Trump agreed to set up a working group to exchange information on bilateral economic ties.

Peter Navarro, a Trump trade adviser, has repeatedly criticized Germany and suggested it is deliberately pushing down the value of the euro, an argument the Germans reject, noting that the currency’s strength is largely determined by policies of the independent European Central Bank.