Fairness – or: What does profit actually mean here?
The protection of the money saved is undoubtedly one of the most fundamental and important needs of every human being. Regardless of whether you only have small amounts or large assets, you have to protect your own savings against losses and protect them from a loss in value. For this reason, in recent years, the improvement in risk education forinvested by investors. Banks, financial advisors and independent experts have stepped up their efforts to provide private investors with understandable and transparent information. The focus is primarily on financial products that are susceptible to fluctuation and whose value can increase or fall significantly. Especially with high-priced and more volatile forms of investment, such asFor example, stocks, the classification as risky is undisputed. These investments should only be recommended to those who are able to understand the risks involved, accept possible losses and deal with them accordingly. For less volatile investment products such as bonds, investment funds or other forms of investment, special risk profiles areTeams of analysts and financial experts created. These profiles should offer the investor the right basis for decision-making as well as possible in order to better understand and manage their own investments. Surprisingly, the numerous regulatory and awareness initiatives that have been launched in recent years include the topic of inflation and its impact on theIndividual investment almost completely hidden. This topic does not seem to play a role in public discussion and regulatory measures, although it is one of the most important influencing factors on the value of the wealth.
Inflation: The Underestimated Risk for Savings and Investors
The central question that many savers ask themselves is: What can I really buy in a few years with my savings? This question receives surprisingly little attention. It is one of the most important social and economic challenges to assess the ability of the state and the economy to assess the purchasing power of wages and assets.to get long-term. Historically, this topic is at least as important as the risks that present short-term price fluctuations in individual forms of investment. If you choose a country and an epoch at will, there is a high probability that an investment of the initial capital over thirty years has been significantly reduced by inflation. Even with oneComparatively low inflation rate of only 3 percent per year – a rate that is hardly noticed in everyday life – the total inflation increases over three decades to significantly more than 100 percent. This means that the real purchasing power of money will drop by more than half if no interest or gains that compensate for inflation are achieved.
State on the already taxed interest and profits once again levies taxes
With an inflation rate of 4 percent annually, the total inflation increases to over 200 percent in thirty years. This means that the original purchasing power of the savings is more than fifty-fold or fifty-fold during this period. For the saver, this means: If he invests 100 euros to get the purchasing power, he would have to pay interest or gains of aboutEarn 200 euros to compensate for inflation. Otherwise, he loses real money, although the nominal amounts are rising in his account. It is particularly problematic that the state levies taxes on the already taxed interest and profits, although the real purchasing power of these amounts has already been significantly reduced by inflation. In other words: theSaving is charged in several ways. The question arises as to whether this behavior of the state is fair, because it affects those who try to invest their assets in a meaningful way and thus contribute to economic stability.
The higher the inflation rate, the more serious the consequences
The higher the inflation rate, the more serious the consequences for savers. With an inflation rate of 4 percent and more over three decades, real losses increase significantly. This means that the assets invested in such times lose value in the long term – regardless of the nominal interest or profit payments. For the individual investor, this means thatIt is extremely risky to only invest your assets in so-called “safe” investments such as first-class government bonds that are officially considered low-risk or “must-proof”. Historical experiences show that inflationary spurts occur again and again in highly developed economies – for example during and after the Second World War or in the years of economicuncertainties in the 1960s. In the UK, Italy and other countries, inflation rates were regularly over 4 or 5 percent on average for the year. The renowned economist Kenneth Rogoff has been left with the argument that today’s framework conditions have improved significantly and that a renewed wave of inflation is excluded, in his work “This Time Is Different”not apply. He points out that price stability is the exception rather than the rule and that significant inflation spikes are also occurring again and again in modern economies. The risk of the money losing value is still real and not just a theoretical scenario.
Long-term investments and the risks of inflation
Anyone who invests their savings today at the age of 40 in order to be able to live from it at the age of 70 takes considerable risks when they invest their money in investments that are considered low-risk or “safe”. Especially with classic investments such as government bonds in their own country or similar fixed-income securities, there is a risk that inflation will be the real value of the incomeconsumed in the long run. This experience influences the behavior of savers worldwide – not only in Germany. It is a challenge to preserve assets over decades in such a way that you can make a living from it after your retirement. In such a context, it would make sense if interest and profits were only taxed to the extent that they exceed inflation. That means that a realIncremental value would be privileged for tax purposes, while inflation-related impairment should not result in any additional tax burden.
Inflation expectations and the monetary policy of central banks
If you look at the monetary policy of the European Central Bank and the development of money in Europe and Germany, an inflationary wave in the coming years can hardly be ruled out. The ongoing expansive monetary policy, the creation of large money supply and the current wages in Germany speak for a higher risk of inflation in the foreseeable future. The same applies to theSwitzerland, especially since the Swiss National Bank introduced the minimum exchange rate limit in 2011. It therefore seems absurd to the saver if he suffers a loss of purchasing power with his assets and at the same time has to pay taxes on so-called “profits”, which only represent nominal amounts and were devalued by inflation.
Tax treatment of capital gains in different countries
In some countries, such as Switzerland, capital gains are tax-free if they arise from investments held under certain conditions. However, investments in interest rate products with interest rates below the inflation rate are taxed there as well as dividends and assets themselves. In Germany, on the other hand, there is no wealth tax, but on realized onesTaxes are collected, often on amounts that are well below the inflation rate, and are often levied on capital gains, dividends and interest income. It is amazing that the issue of taxation of inflation-related losses and real monetary value reduction in public discussion receives comparatively little attention. The courts have long been hardly concerned with this problem, althoughthe situation is clearly problematic for savers and investors. Because if the individual puts aside part of his assets after full tax payment, he is de facto expropriated by the inflation. Even if it is possible to compensate for part of the loss in value through interest or nominal gains, this supposed success is taxed again by the state.
The value of gains and the illusion of nominal numbers
A win is not just a higher number on a bank statement or in the financial report. Rather, it means the possibility of buying more in the future. This is particularly evident in real estate: The value of an apartment in a good location usually remains relatively constant when you look at it compared to the monetary value. If someone sells such an apartment, he will receiveAn amount that is sufficient to purchase a comparable property in a different location. It is irrelevant whether the number on the purchase contract has increased – rather, the reason for this is usually that the purchasing power of money has fallen. The real values are therefore changing due to inflation, not only due to the price development of individual goods.
Trust in the state and the need for systemic corrections
It would be helpful for the acceptance and trust in the state’s tax system and financial policy if it showed more transparency and fairness. This also means correcting the systemic errors that ignore the devaluation of money and disadvantage people in their wealth accumulation. For the saver it is simply grotesque when he has amust accept a reduction in purchasing power and at the same time pay taxes on the nominal amounts that it achieves through interest or profits. History shows that broad sections of the population in all regions of the world were gradually expropriated by inflationary flare-ups and some of them fell into poverty. Measures that accelerate or increase inflation are being carried out by the financial world andclosely observed in politics because they can cause social tensions and economic destabilization.
Inflation protection and political and legal challenges
It is therefore not surprising that fears of creeping expropriation and loss of assets also lead to political debates and legal proceedings. The concerns about the preservation of purchasing power and the protection of one’s own assets are not only theoretical in nature. Especially since the large bond purchase program of the European Central Bank, with which the yields of government bondsshould be pressed, uncertainty is growing. Critical organizations and private individuals have filed lawsuits with the European Court of Justice and the Federal Constitutional Court to challenge this policy. The aim is to stop inflationary policies and protect citizens’ savings. The issue of inflation protection is thus one of the central challenges of our time, whichhas not only financial, but also legal and social dimensions. The decision of the courts will have far-reaching consequences, both for monetary policy and for the confidence of the population in the system.
Countries with high inflation and economic uncertainty, the topic is more topical than ever
In the global perspective, it is not only Germany or Europe that are facing this problem. There have also been long disputes and complaints in other countries, such as the United Kingdom or Argentina, regarding the calculation of inflation, the taxation of assets and the safeguarding of pensions. Especially in countries with high inflation and economic uncertainty, the topicmore topical than ever. The general public is increasingly recognizing that inflation protection is not a luxury, but a fundamental prerequisite for the financial security of citizens. It is time for states and courts to give this issue the attention it deserves to ensure long-term stability, justice and trust in the financial system.
