Public finances

Pandemic-related new debt borrowing helped to dampen the effects of the pandemic on the economy and jobs. In the meantime, the debt adds up to a large amount. To prevent the debt from becoming too great a burden for future budgets and taxpayers, policymakers must promptly reinstate the debt brake and return to a budget policy that is fair to all generations. Additional tax revenues must be used for investment and not for consumption.

Return to intergenerationally fair and sound public finances

Today's debts must be borne by future taxpayers through their taxes and levies, which is why intergenerational budgetary policy is important. At the same time, stable budgets make it possible to act in crisis situations. The debt brake and "black zero" gave Germany the financial leeway that was finally used in the pandemic. In order to restore the country's ability to act in budgetary terms, it is essential to repay the debts it has taken on in a timely manner. This is supported by a growth-oriented economic policy and consistent spending discipline.

Consistently reduce pandemic-related debt - leverage fiscal rules

For the first time since 2002, Germany fell below the Maastricht ceiling of a government debt ratio of 60 percent of gross domestic product (GDP) in 2019. The government debt ratio depends on economic growth: If GDP increases and no new debt is taken on, the government debt ratio is reduced.

Due to the economic upswing in the 2010s and the accompanying increase in GDP, the "Corona debt" did not increase the government debt ratio as much as the debt taken on during the economic and financial crisis of 2008/2009: By 2010, the public debt ratio had grown to more than 82 percent of GDP, while by 2021, the public debt ratio is expected to rise to about 70 percent of GDP. However, this supposedly "smaller" increase masks the actual level of borrowing.

Between 2009 and 2011, Germany had borrowing of around EUR 96.5 billion. If the currently planned borrowing authorization framework is fully utilized in 2022, Germany will take out Corona-related loans of around EUR 470.4 billion between 2020 and 2022. Added to this are the planned special assets for the Bundeswehr (EUR 100 billion) and spending on the relief packages in connection with the Ukraine war. By way of comparison, total spending in the 2019 federal budget amounted to 343.2 billion euros.

To ensure that these funds, which are primarily used to deal with today's crises, do not place too heavy a burden on future generations, we need timely repayment and renewed compliance with the debt brake as well as sustained economic growth.

Growth and employment stabilize public finances - debt brake not an obstacle to investment

Compliance with the Maastricht ceiling, with a simultaneous shift to a climate-neutral economy, requires an economic policy focused on growth and investment. Investments are a foundation of economic growth. If companies invest in new business areas, for example, they need additional personnel or machinery. Public investment provides incentives for additional private investment and ultimately triggers economic growth. This is all the more important because more than half of all capital expenditure in the economy as a whole is made by companies. Conversely, cutting government investment, for example to achieve budget consolidation, would be a counterproductive strategy. With investment spending of more than EUR 255 billion in the period from 2022 to 2026, the federal government is sending out an important signal.

The debt brake is also not an obstacle to investment, because the level of public investment spending was higher after its introduction than before; also in relation to total federal spending. A high level of public investment requires political will to set the right priorities in the federal budget. However, as 2021 shows, the funds available for investment must also be used.

Targeted reduction of subsidies

The demand for subsidy reduction is a perennial issue and is also reflected in the formation of the government for the 20th legislative period. Subsidies are not only expenditure items in the budget. They distort prices and thus competition, encourage misallocation of resources, and can delay necessary structural change. At the same time, not every subsidy is detrimental to competition and growth, as the start-up promotion of new growth-promoting or basic technologies shows. Therefore, what is needed is not a blanket reduction in subsidies, but a targeted reduction that does not restrict growth and the performance of the workforce.

12. December 2022

Public finances