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reIntroducing new federal budgets is routine for the federal government this year. Twice in recent months there was a supplemental budget for 2020 due to the crown crisis, the first draft for 2021 is now available.
And again, the federal government is planning a lot of new debt. It plans to take out an additional credit of 96.2 billion euros next year, after having received credit authorizations for this year for a volume of 217.8 billion euros. To do this, Federal Finance Minister Olaf Scholz (SPD) has to once again suspend the debt brake provided for in the Basic Law.
But that should have been the last time. “The debt brake should apply again from 2022,” says the Federal Ministry of Finance. This is the fixed plan.
The budget gap could close on its own
This should be successful mainly thanks to the cushion, which is still known as the asylum reserve, and which will not be touched in the next year either, but only from 2022. The pot, which dates back to the pre-Crown period, contains a good 48 billion euros.
Even with these reservations, however, it is still unclear whether the return to an orderly budget will be successful without tax increases or spending cuts. There is still a gap of 9.9 billion euros in the government’s medium-term financial planning for 2022, and around 16 billion euros for each of the following years. Overall, there is still a gap of 42 billion euros for the three years from 2022 to 2024.
This hole could close on its own through positive economic development and thus higher tax revenue than fiscal estimates have so far predicted. “We are betting on that,” said a government representative, noting that this had already been achieved after the financial crisis.
Also at that time, initially there were gaps in financial planning, called “need for action” in housekeeper language, which would later have been dissolved due to economic recovery until the budget was actually drawn up.
If this is successful and the debt brake can be met in 2022 without tax increases or spending cuts it will no longer be a concern of the current federal government. The budget for 2022 will only be limited after the next federal elections in September next year, possibly under the auspices of Chancellor Olaf Scholz.
The current cabinet of Angela Merkel (CDU) should launch the budget project next Wednesday. Then the numbers go to the Bundestag, which has sovereignty over the budget in the Federal Republic. The deliberations of the parliamentarians should conclude in mid-December. Later than usual, but just in time for the turn of the year, as they say.
The two supplementary budgets this year caused the delay. In the past week alone, members of the tax assessment task force met off-shift to update the state’s future revenue forecasts based on the development of the current crisis. They cut their May estimate for federal revenue in the next year by another 10 billion euros. Compared to pre-Crown estimates, the federal government will have to make do with € 43 billion less tax revenue in 2021.
Additional increase in pension insurance subsidies
Additionally, the federal government has accepted aid packages worth billions to save jobs and businesses. Looking ahead to next year, this also includes an increase in subsidies to stabilize social security contributions and possible compensatory payments to the Federal Employment Agency due to the significant extension of the short-term allowance.
According to the draft budget, federal spending in the next year will total a good 413 billion euros. That is almost 100 billion euros less than this year, but still almost 60 billion euros more than in 2019. The largest item in the federal budget is still transfers to mandatory pension insurance at 106 billion euros, this year was around 100 billion euros for the first time. . Without this subsidy, pension contributions would have been more than 20 percent today instead of 18.6 percent today. Another five billion will go to the health fund to stabilize mandatory health insurance funds.
At the Federal Ministry of Finance, it is important to note that investments will remain high for at least the next year despite the corona pandemic. “The red pen is not being used.” Everything is being implemented as planned in some cases before the crisis, climate protection projects, as well as digitization or artificial intelligence projects.
Finance Minister Scholz presents the result of the special tax estimate
To better take into account the consequences of the crisis in the crown, the federal government has ordered an extraordinary fiscal estimate. See here the presentation of the results, presented by Finance Minister Olaf Scholz.
Including new initiatives as part of the economic and future stimulus package presented in June, the ministry specifies investment spending for next year at 55 billion euros, after a good 71 billion euros this year. In the previous year, capital investments amounted to 38.1 billion euros.
Despite the renewed debts that are earmarked for this in the federal budget in 2021, the debt ratio is expected to remain at around 75 percent. That can be successful if the economy really recovers next year. The federal government’s forecast sees growth of 4.4 percent before down from less than 5.8 percent this year. For the years 2022 to 2024, the average annual growth will be 1.5 percent, according to the proposed budget.
A government representative said that Germany will have the lowest debt ratio of all the G-7 countries in the coming year. This is an expression of a still strong fiscal policy, despite record debts in the crisis.
