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Friday 18 September 2020
The worst recession in Germany will be countered next year by taking on new debt. In return, Finance Minister Scholz wants to continue lifting the debt brake. A full recovery of the German economy is expected by 2022.
In the fight against the Crown crisis, the Minister of Finance, Olaf Scholz, wants to assume around 96,000 million euros in new debt in the federal budget in 2021. Also in the next year, the debt brake anchored in the Basic Law, as it was said from circles of the Ministry of Finance. The crisis must not be saved later.
In the current year, new loans are at a record level of around € 218 billion. The federal government has decided on packages worth billions to get jobs and businesses, and it’s also about investments in future technologies. In addition, the municipalities are relieved. In addition, there are subsidies to stabilize contributions to social security or to the Federal Employment Agency due to the significant extension of short-time benefits.
In Finance Ministry circles it was said: “doing nothing would be much more expensive.” Again, a repayment schedule is associated with the new net debt. Debt repayment is scheduled for 2026 to 2042. According to key points, federal spending in 2021 will be 413.4 billion euros. That’s almost 19 percent less than this year. However, major spending on aid packages, for example, had an impact this year. Based on the key points, social spending is increasing. More money is also planned for the defense and transport budget.
Economic production in Germany collapsed in the spring due to the blockade. The federal government forecasts a 5.8 percent decline in gross domestic product for the year. This would be the worst crash in postwar German history to date.
Significantly less tax revenue
This has massive consequences for tax revenue. According to the latest excise tax estimate, federal, state and local governments will have to cope with significantly lower tax revenue in the next year than expected in May. A significant economic recovery is expected next year, but the pre-crisis level will not be reached until 2022.
Scholz plans to stop making use of the debt brake waiver starting in 2022. Even after the debt brake, however, new debt is allowed to a lesser extent. According to the financial plan, debts of 10,500 million euros are expected for 2022, 6,700 million in 2023 and 5,200 million in 2024.
The Finance Ministry also sees billions of euros in “need for action” from 2022 so that the debt limit can be met again. In other words: either revenue will be increased, for example through tax increases, or spending will be reduced through austerity packages. However, a lot depends on how quickly the economy recovers.
