German towns cut budgets, anticipating tax shortfalls from VW emissions scandal

MUNICH, Germany – The towns that became synonymous with Volkswagen’s rise to the pinnacle of the auto industry are feeling the pinch of the diesel-emissions scandal, freezing spending on capital projects.

Wolfsburg, the northern German town founded in 1938 to build the “people’s car,” is halting 30 projects, including new playgrounds, an ice rink and road work totaling $19 million, in anticipation of lower tax revenue from the company that employs half its 125,000 population. Nearby Braunschweig and the Bavarian town of Ingolstadt, home to VW’s Audi brand, have also reined in their budgets.

“Even if our town is free of debt and we were able to put provisions aside, we’re expecting a significant drop in commercial tax revenue,” said Wolfsburg Mayor Klaus Mohrs, who has also implemented a hiring freeze as he gauges the extent of the fallout. “We’re putting every project up for scrutiny.”

Germany’s Institute for Economic Research estimates that VW’s commercial and corporate tax payments over the next two years will be $3.31 billion lower nationwide as a result of the emissions scandal. The problem is especially acute for towns where VW has large numbers of employees because there’s also a concern that jobs may soon be on the line. VW employs 271,000 people in Germany.

Beyond those who work directly for VW, many more depend on the 12-brand automotive company as the fallout threatens suppliers and services. About 75,000 jobs in Germany depend on diesel technology, Economy Minister Sigmar Gabriel told said last week.

VW’s engine plant in Salzgitter, with about 75,000 employees has already cut one weekly shift in anticipation of falling demand. Management is also considering reducing the temporary workforce, Bernd Osterloh, works council chief and a supervisory board member, told the news service dpa this week.

“We don’t know what consequences the crisis will have,” CEO Matthias Mueller said in a speech this month. “We’ll do everything to keep employment levels in the company.”

German municipalities collect commercial taxes from local businesses and on land. They’re also allocated a portion of the income and sales taxes that individuals pay. Any job cuts would be a double whammy because on top of the lost revenue, those without jobs would get unemployment benefits.

“Wolfsburg can probably deal with a tax shortfall with a number of measures like delaying investments,” said Gerhard Lippert, a spokesman for the Lower Saxony branch of the German Taxpayers Federation. “If the town can get through this without job cuts remains to be seen.” Hanover, Salzgitter and Emden, where VW has a factory, are also at risk, Lippert said.

In Wolfsburg, VW employs more than 60,000 people to make the Golf hatchback, Tiguan sports utility vehicle and the minivan-like Touran. The picture is similar in Ingolstadt, a town of 131,000 north of Munich where about 40,000 people work at the local Audi factory.

Ingolstadt, with an annual budget of about $500 million, is setting aside 15 percent of its funds as a precaution, a town spokesman said.. In Braunschweig, authorities have decided to limit spending on vehicle maintenance and staff training for now.

The scandal “mustn’t lead to any disadvantages for workers,” who are not to blame for wrongdoing at VW, Gabriel said at a labor union conference Sunday. “It’s not their fault that someone established a wrong corporate culture there.