Cutting social spending? Economist explains why he thinks this is a bad idea

Mr. Truger, 17 billion is missing from the 2024 budget, says Finance Minister Lindner. Where should the government make the best savings?

This is the wrong discussion. The money that will no longer be available in the coming years as a result of the Karlsruhe ruling was intended for credit-financed investments. The best way for the Ampel to finance this is to find a way to take out loans. I'm thinking of a reform of the debt brake or a kind of "special climate fund". Similar to the special fund for the Bundeswehr, which was enshrined in the Basic Law with the votes of the CDU/CSU.

The SPD and the Greens would probably also prefer this. But this time the CDU/CSU is blocking it. And the FDPalso wants the coalition government to make better use of the money available .

If the government wants to save money, it should look at climate-damaging subsidies. Their abolition has already been announced in the coalition agreement. However, if the traffic light government actually cuts social spending, as some are now demanding, this will not only lead to serious social problems, it would also be bad for the economy.

You need to explain that.

The financial policy for the coming year was already restrictive anyway. If you now make cuts in the social sector, you are creating an additional restrictive impulse. This makes it more likely that the government will plunge the economy into recession. We need the level of investment provided for by the Climate and Transformation Fund and the Economic Stabilization Fund. If these are removed, economic growth will fall by 0.9 percentage points.

There are numerous proposals for cuts in social spending. These have long been coming not only from the CDU/CSU and FDP, but also from other economists.

What we are seeing at the moment is a big game called "What I always wanted to say". Many are using the ruling from Karlsruhe as an excuse to propose cuts that they have already proposed before.

Are the ideas all so wrong?

Some proposals can be discussed. They just wouldn't help us in the current situation with an acute hole in the budget. Other proposals, however, would have a massive negative impact on the poorest in society. And that shows the absurdity of the whole debate: because the government has made a complete mess of financing climate-friendly investments, poor pensioners are now supposed to pay the price?

Her colleague on the panel of economic experts, Veronika Grimm, has also spoken out in favor of cuts to pensions. She thinks that the pension from 63 or the mothers' pension could be put up for discussion.

Anyone can make suggestions. But I don't think these cuts are advisable. These ideas are half-baked rush jobs. There are valid rules for pension adjustments that should not be overridden for the sake of short-term budget cuts. In the case of mothers' pensions, there is also the fact that they work against poverty in old age. If this is cut, it would have a particularly strong negative impact on the lowest income bracket. This would increase the at-risk-of-poverty rate and ultimately drive more people into basic income support. This would therefore place a burden on the state elsewhere. There is also an instrumental problem with both proposals: these pensions are paid primarily from contributions. Removing them would reduce the burden on those paying contributions, but would not save that much in the federal budget.

Nevertheless, the majority of social spending goes towards pensions. The federal government pays around 100 billion euros a year as a subsidy to the statutory pension insurance scheme. Shouldn't that be cut?

You could argue that, but what are the consequences? Of course, you could simply reduce the federal subsidy. But then, on the other hand, contributions would have to rise. I don't think that would help us.

Then let's look at the citizen's income. The CDU/CSU is taking issue with the 12.6 percent increase at the start of 2024.

In my view, that is populism, pure theatrical thunder. The CDU/CSU itself has agreed to the mechanism that adjusts the citizen's income more quickly to inflation. Apart from that, there are strict constitutional limits to the Citizen's Income, which secures the minimum subsistence level. You can't simply cut it.

Couldn't the basic child benefit be introduced?

It should be a major concern to limit child poverty. If you seriously want more people to receive the benefits they are actually entitled to, you should not prevent the introduction of basic child protection. Moreover, it is not due to be introduced until 2025, so its removal would not help at all in the 2024 budget.

In recent weeks, there has been massive criticism of the design of the basic child protection scheme, not only from local authorities, but also from the Federal Audit Office and the Federal Employment Agency, which is supposed to implement a significant part of it.

Of course, we have to find the most efficient design possible. The question of interfaces is complex and is still being discussed. However, I think it would be inappropriate to question the basic child protection scheme as a whole because of this.

Let's briefly state that we should not make cuts in the social sector, but a reform of the debt brake or a new special fund anchored in the Basic Law are currently politically blocked. So what should the traffic light do?

If politicians do not want to or cannot take out additional loans, they must look at the revenue side. A "climate soli", similar to the current solidarity surcharge, could help to finance climate projects. Alternatively, of course, energy taxes or the CO2 price could be raised. This would be good from an ecological perspective, but would also be a burden in economic terms. One thing is certain: We must not cut back on investments now. That will pay off in the future.

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The FDP, along with the CDU/CSU, is pushing for the government to make better use of the available funds, rather than cutting social spending. This is a bad idea, according to economist Achim Truger, as it would lead to serious social problems and negatively impact the economy during a potential recession. The government should instead look at cutting climate-damaging subsidies, as mentioned in the coalition agreement. The SPD and the Greens would likely agree with this approach. However, the federal government pays around 100 billion euros annually as a subsidy to the statutory pension insurance scheme, and cutting this could lead to increased contributions for citizens. Any changes to social spending should be carefully considered to avoid negatively impacting the most vulnerable in society. The current budget crisis requires a thoughtful and strategic approach to finance climate-friendly investments without sacrificing social welfare.

Source: www.stern.de