Corona is making a tough industry more difficult

Many pubs, restaurants and cafes only made it this far with government help. Corona may be the final straw.

Closed.Imago Images/Jochen Eckel

Berlin-The head of a South American restaurant in Charlottenburg is happy with the current corona government aid package - it also benefits the restaurant industry. "If everything works out, I'll get 75 per cent of sales from November 2019," he says. "We can survive because we've always paid our taxes honestly."

This is where some restaurateurs could stumble. Berlin has 19,000 restaurants, pubs, cafés, bars, ice cream parlours and caterers. But not all of them are up front at tax time when they report sales to the tax office. 

"For anyone who didn't, all we can say now is, 'Congratulations, you're now rightly getting less from the November Aid,'" says Thomas Lengfelder, general manager of the Hotel and Restaurant Association (Dehoga). The association distances itself from the practice. "We assume, however, that the large majority of our members work clean and above board."

No one knows just how big of a problem tax fraud is. Although no official figures exist, local tax authorities point to 2019 audits where they checked official receipts against what seems plausible for businesses. Last year, 1,861 audits yielded €50.4m in back taxes.

Not even outside seating.
Not even outside seating.imago images/Christian Spicker

"That is extraordinarily high," said Berlin finance minister Matthias Kollatz (SPD). "This makes it all the more important to take consistent action against tax evasion and avoidance."

Berlin's restaurant industry, which is a key component in the city's attractiveness, is on the brink of an abyss. Dehoga boss Lengfelder says that the biggest problem is the lack of tourists: "As a result, in some hotels only 5 per cent of the beds are occupied. This is almost like a complete shutdown."

The crisis in the hotel industry also has an impact on the catering trade, he says. Many restaurants not only rely on neighborhood residents; some, like those on Kudamm where rents up to €200 euros/sqm aren't unusual, live from tourists.

"That is why the November subsidy is a very positive sign," says Lengfelder. "But if this money doesn't flow quickly, there will be a huge wave of bankruptcies." The city's solo self-employed are particularly at risk: stage hands, technicians, caterers.

"Seventy-five per cent are facing bankruptcy, and 30 per cent of hotels are in danger of insolvency. And the situation is not much better for the restaurants," he says.

The restaurant business was tough enough even before corona. Every wholesaler knows several customers who pay their bills late. And staff are often hired at a moment's notice and without invoicing. Pubs and cafés come and go. According to the industry association, just as many new restaurants open every year as close and many only survive thanks to underpaid staff.

The German statistics office just took a closer look at the industry. According to the study, in 2018 two out of three catering employees worked below the minimum wage, or less than €11.05 gross per hour. No other industry had more low-wage workers.

A special illegal labour task force at the customs office in Berlin has 280 employees and inspects companies at all times of the day and night. Last year it carried out 671 inspections in the catering trade alone and made the same discovery that half the companies weren't paying enough. 351 proceedings were initiated for undeclared work or undercutting minimum wages.

Sabine Zimmermann, labour market policy spokeswoman for Die Linke MPs, requested a special evaluation from the Federal Employment Agency and found out that 7.6 per cent of carers and 6 per cent of skilled workers in catering professions have to top up their wages with Hartz IV benefits because the earnings alone aren't enough to live on. Quite a few pub owners have been having their businesses subsidized by the state.