Continuity on German budgets

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The new German government today presented its budget for 2018, a project that increases investment and maintains the “zero deficit” and where there is a sense of continuity despite the move of the Ministry of Finance from the Conservatives to the Social Democrats.

The Finance Minister, Olaf Scholz, welcomed the “unanimous” approval by the Council of Ministers of the second draft of the federal budget for this year, since the first draft was processed at the end of last year, with the Executive still in office after the general elections of last September.

Germany keeps being the benchmark in Europe

According to Scholz, who succeeds the conservative Wolfgang Schäuble, who is an exponent of the austerity line, Scholz is following a “responsible financial policy” that manages to “reduce debts and increase investments” at the same time.

Scholz said the bill approved today – which included the 2018 budget, the 2019 financial parameters and the 2019-2022 financial plan – increases aid to families, relieves taxpayers and increases investment in infrastructure, digitization and social housing.

At the same time, the minister added, the federal government’s accounts for the coming years foresee a progressive reduction in the national debt so that, predictably next year, the debt to GDP ratio will fall below 60%, as required by the Maastricht Treaty, but hardly any European economy complies.

This will guarantee Germany’s “independence” and “fighting capacity” in an increasingly competitive economic environment, Scholz added.

However, the Ministry of Finance’s bill has provoked criticism throughout the opposition, from the Liberal Party (FDP) to the Left, and also within the Executive branch itself, as the Ministries of Defence and Cooperation have protested against not receiving sufficient funds and are hoping, according to local media, that their spending on parliamentary procedures will “improve”.

The Christian Democrat Ursula von der Leyen, Minister of Defence, said that it is “important” that “Germany’s foreign security” be given a “sound financial perspective for the coming years”.

Scholz has downplayed the criticism, assuring that all departments aspire to more resources but that, above and beyond these priorities, there is a need to comply with budgetary stability, anchored in the Constitution.

Reasons to be optimistic

It also denied that public investment would fall in the coming years, as the’Süddeutsche Zeitung’ published today, arguing that not all investments are included under this heading.

According to the Executive’s forecasts, this year the German government will raise and spend 341 billion euros (3.1% more than in the previous year), 356.1 billion euros in 2019 (4.4% more), 361.3 billion (1.5% more) in 2020, 362.8 billion (0.4% more) in 2021 and 367.7 billion euros (1.4% more) in 2022. All without resorting to new deficits.

According to Scholz, investment will increase “enormously”: in Training and Research this year, it will reach 22.9 billion euros, while in Transport it will reach 15 billion euros.

Expenses on defence

Defence spending will increase by 1.5 billion euros compared to the 2017 budget, to 38.5 billion euros, but will remain at 1.2% of GDP, a long way from the 2% that NATO members must reach by 2024 and which the US is demanding to reach as soon as possible.

Scholz argued in this respect that defence investment is very long-term and that its budget needs planning and cannot be increased ‘overnight’, but stressed that’it will rise as promised’.

Along with the budget, the Council of Ministers approved a bill to reform the Constitution to include two points from the Government agreement of the grand coalition of Christian Democrats and Social Democrats that have budgetary implications.

In this way, the federal government could begin to invest in the modernisation of schools, in the construction of social housing and on railways, which up until now were to be financed exclusively by the Länder.