Berlin presents new financial four-year-plan | Business| Economy and finance news from a German perspective | DW | 21.03.2012
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Berlin presents new financial four-year-plan

The German economy is strong and unemployment has shrunk - much to the delight of Finance Minister Wolfgang Schäuble. The extra cash should be noticeable in the 2013 budget - and beyond.

Spring has sprung, the sun is shining - change is in the air. That's what the association of taxpayers thinks anyway, which is why it presented its "Operation: Spring-Cleaning" this week, with 30 savings suggestions for Finance Minister Wolfgang Schäuble to consider in Germany's next budget draft on Wednesday.

The taxpayer's hit-list ranges from a 230,000-euro ($304,000) subsidy for the cultivation of white, yellow, red and violet organic carrots, through a similar subsidy for red apple juice, all the way to civil servants' pension plans and the driver service for former presidents of the German parliament.

Altogether, it comes to 156 million euros of savings, reckons the association's president Karl Heinz Däke. "Our 30 examples are meant to inspire ideas about how and where the budget can be cut - even within large spending blocks," he said. "The government should take the good spring-cleaning tradition and apply it to the budget - and start saving!"

Schäuble has his own savings plans

Finance Minister Wolfgang Schäuble

Schäuble planned a series of budget cuts

In principle, it's a notion that Schäuble is open to. His draft for the 2013 budget contains significantly fewer outgoings. The total spend is to be 300.7 billion euros - a good 4 percent less than this year. There should be 19.6 billion euros of new borrowing - 5.5 billion euros less than was projected a year ago.

But there are additional items planned. There's the so-called child care subsidy, which parents are to receive in exchange for keeping their children at home, plus extra tax relief measures.

Schäuble's savings are mainly supported by the strong economy and low unemployment. But he is also treating himself to a large scoop out of the social insurance programs. The minister wants to keep 2 billion euros of the 14 billion that the federal government injects into the state healthcare services yearly. That is possible because insurers have built up huge surpluses. He also intends to cut another 2 billion euros from the subsidy for unemployment benefit insurance, plus 1 billion from the subsidy for state pension plans.

Debt limit forces cuts

The government's financial plan up to 2016 gives the impression that Schäuble's ambition has been piqued. Germany's national debt limit - now enshrined in the constitution - has been in force since last year. It stipulates that from 2016 on, the state's net new loans must not exceed 0.35 percent of the Gross Domestic Product. That means that new borrowing will have to go down to 14.6 billion euros in 2014, 10 billion in 2015, and just one billion in 2016. Then Germany's books would, if all goes to plan, be almost balanced.

But that certainly isn't true for this year. As it lays out its plans for 2013 to 2016, the government will also have to agree a revised budget for 2012.

Germany's contribution to the European Stability Mechanism has driven this year's new credit up by 8.7 billion euros to nearly 35 billion euros. That's a figure that has got stomachs churning among many politicians. Even among Schäuble's party colleagues, the voices calling for more drastic cuts than planned have multiplied.

Fake frugality?

Norbert Barthle, budget expert in the Schäuble's Christian Democrat parliamentary group, thinks that the financial plan is not ambitious enough - he would like to see a debt-free budget by 2014. That would mean extra cuts of 14 billion euros, which, Barthle admits, would be difficult - but doable.

The logo of the European Central Bank, slightly distorted

The euro crisis still presents a major risk to the budget

Similar noises are emanating from the Free Democratic Party (FDP), the government coalition's junior partner. FDP General Secretary Patrick Döring has been calling for tax surpluses to be used to be used directly to repay debts.

Whether these demands are serious remains to be seen. The Bundestag faces a general election in 2013, and the center-left Social Democratic Party (SPD) is already speculating that the government's back-bench demands are nothing more than an early piece of election campaigning.

SPD deputy parliamentary leader Joachim Poss thinks that Schäuble's budget will not hold. "Minister Schaüble's announcement of a faster reduction of new debts in the next few years is pure - and fairly cheap - propaganda," he said. Poss also thinks that Schäuble is working on the assumption that the German economy will keep growing for at least another three years. This, he says, goes against all experience.

Final decision

No one can predict yet how Europe's debt crisis will develop, and what effects it will have on the next few budgets. The only thing that's certain is that there'll be plenty of argument about the 2013 budget. For now, the finance minister has to turn the draft into a complete budget proposal, which the government is expected to approve shortly before the parliamentary summer break.

The proposal will then be debated in the Bundestag in September and November, and, between these dates, it will be re-assessed and re-examined in several committees. What happens then is anyone's guess - an old nugget of parliamentary wisdom says that a budget is never the same coming out of the Bundestag as it was going in.

Author: Sabine Kinkartz / bk
Editor: Michael Lawton

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