Scrappage payouts questionable on economic grounds

A study by a German economics institute has heavily criticised car 'scrappage' schemes as distorting competition, subsidising cars, and creating problems for the future.

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[mailchimp_signup][/mailchimp_signup]The scrappage schemes have been criticised by T&E and other environmentalists as being economically, environmentally and socially damaging, needlessly prolonging industrial overcapacity, further entrenching car dependency, and primarily favouring those wealthy enough to buy a new car.

But the schemes have been justified by governments on economic grounds.
Now the Halle Institute for Economic Research has analysed the economic impact of the German government's scheme to offer incentive payments of €2500 for people to trade in nine-year-old cars for new ones. The scheme is costing the government €5 billion.

The institute says: 'Behind these payments stands nothing more than the subsidising of an individual branch of the economy – with all the negative distorting effects that such favourable treatment brings...'

The analysis says the payments will cause major imbalances in the German economy, which will require adjustments through further state intervention later. This will be costly for the taxpayer and require compensatory measures in other branches of industry.
'Stimulating the economy can only be used as a partial justification,' it says.

Another research body, the German Institute for Economic Research, has been equally critical. 'Scrappage payments are economic nonsense,' its subsidies expert Victor Steiner told Spiegel magazine. 'They can only be justified in terms of election tactics – and as a result of car industry lobbying.'