Germany finally has a budget plan for next year. This kind of headline just two weeks before the end of the year shows how much tax times have changed in Europe. In the past, German budget plans rarely made the headlines.
The new budget follows the Constitutional Court’s ruling a month ago that the reallocation of €60 billion of unused pandemic-era debt to the climate and transformation fund was not in line with the Constitution. As a result, the government was forced to suspend ex post the constitutional debt brake for the 2023 budget and to resolve a financing gap of around €17 billion for the 2024 budget. These two solutions, however, do not They would solve the long-term financing problem of the missing 60 billion euros.
A few minutes ago, Chancellor Olaf Scholz and the two vice-chancellors of the government, Christian Lindner (Minister of Finance) and Robert Habeck (Minister of Economic Affairs), presented the main elements of the plan to resolve the financing gap of 17 billion euros for 2024: A combination of spending cuts and a partial easing of the debt brake. In short, the government plans to reduce climate-damaging subsidies, stop subsidies to electric vehicles and the solar panel industry earlier than planned, reduce some spending by individual ministries, and try to make social spending “more efficient.” There will also be an increase in the price of CO2 emissions and the introduction of a new tax on plastic packaging. The government wants to avoid a fifth consecutive year of official deviation from the constitutional debt brake, but still wants to investigate whether there could be a diversion of almost €3 billion to continue funding support for 2021 flood damage. Finally, the climate and transition fund will be reduced by a total of 45 billion euros for the period 2024 to 2027.
In short, the announced measures seem manageable for the economy. However, the ongoing controversy over how to combine large-scale investments with balanced budgets will not end after today’s announcement. Indeed, with fiscal policy becoming restrictive and still a high degree of political uncertainty, the risk of the German economy remaining in a minor recession next year is high.