A German financial watchdog has warned the German government's preoccupation with balanced annual federal budgets covers up a number of underlying risks. They point to grave structural discrepancies.
According to a fresh analysis by Germany's Supreme Audit Institution, huge financial risks hide behind the shining facade of the government's 2016 draft budget, which once again foresees no fresh borrowing despite rising costs to accommodate a growing number of refugees.
The parliamentary budget committee had only last week paved the way for the 2016 draft plan which it said would be based on continuously high revenues, enabling Berlin to do without fresh loans.
But the audit office's president, Kay Scheller, on Tuesday criticized the government for drawing up a budget that was far too dependent on rising revenues and continuously low interest rates.
"By contrast, structural budgetary reforms, including a systematic decrease in federal spending and freeing up resources for more investments had once again been given short shrift," Scheller maintained.
Excessive social spending?
He said the German state now had to pay roughly 20 billion euros ($21.3 billion) a year in terms of debt servicing amid record-low interest rates, while back in 2008 it paid about 40 billion euros for the same purpose. An interest rate trend reversal had not been penciled in to the draft budget, the office warned.
It also criticized the rapidly rising social affairs expenditures to be allocated despite record employment levels. The watchdog singled out pension costs, which it said were scheduled to rise from 84 billion euros at present to 98 billion euros by 2019.
The office argued that too little was being spent on modernizing and upgrading Germany's infrastructure, adding the country's highways were in a deplorable condition.
Last but not least, the German auditors said they were alarmed by the fact that the federal government had got into the habit of assuming financial responsibility for more and more projects and fields the 16 regional states ought to provide the necessary resources for. Scheller mentioned in particular community-level infrastructure projects and child care.
hg/cjc (Reuters, dpa)