Economist Raffelhüschen: "The debt brake is a blessing"

Budget crisis - Economist Raffelhüschen: "The debt brake is a blessing"

Capital: Mr. Raffelhüschen, Federal Chancellor Olaf Scholz renewed his promise in the Bundestag on Tuesday that the federal government would not leave anyone alone. You'll never walk alone - despite the budget crisis. Is that a serious promise in view of the ruling by the Federal Constitutional Court and massive savings?

Bernd Raffelhüschen: That's a nice saying, of course. But it has nothing to do with reality. Scholz is diverting attention from the constitutionality of his budgets. The supplementary budget for 2023 that has now been submitted is in principle a breach of the debt brake and therefore not constitutional - at least if there had been no emergency in 2023. And I don't see one.

The war in Ukraine and the energy crisis have had an impact right up to the current year. Doesn't that justify an emergency?

According to the Constitutional Court, an emergency must be exceptional and situational. We can't simply extend an issue from 2022 at will. However, the government has no other choice because the budget for 2023 is only four weeks away.

Economists like Rüdiger Bachmann point out that crises usually last longer than one financial year - which is why the Federal Constitutional Court's ruling is "macroeconomic illiteracy". Is he right?

No, I take a different view in the current case. We have had emergencies in the past - for sure! The coronavirus crisis, for example, made it necessary to suspend the debt brake. But the emergencies are over and the economy has had enough time to adjust. The strict separation of budget years could be debated, but it makes sense to determine the need for each year anew. The problem is a different one.

And that is?

We massively inflated our budget during coronavirus and got used to it. In 2019, we had a budget of 350 billion euros, then 550 billion euros in 2022 and 480 billion euros in 2023. This means that we have not yet reduced the coronavirus-induced additional expenditure, even though the crisis no longer exists. And we are now discussing a budget of 480 billion euros again for 2024. That cannot be sensible, rational budget management.

So you are advocating savings in the new budget in order to plug the holes that have been created?

Yes, there is no other way. However, I don't see any political solution: the SPD doesn't want to tackle social spending, the Greens don't want to tackle the energy transition and the FDP wants to comply with the debt brake. It's like squaring the circle.

In your view, which side would have to accept cuts first?

The debt brake has constitutional status. We can no longer ignore it - not even with emergency programs or white lies. No, we have to tackle social spending, if only for demographic reasons. But we also have to tackle subsidies. We cannot allow the hasty energy transition to lead us into de-industrialization.

Rushed?

Yes, excessive and rushed. Germany cannot stop global warming on its own. And if other countries allow themselves ten more years for the energy transition, perhaps we should do the same.

But you also mentioned social spending. What are you thinking about there?

We have to tackle every corner. And not with nail scissors, but with a lawnmower. We have to ask everyone, without exception, to make a sacrifice. Starting with the citizen's income, which should be linked more closely to the individual's willingness to perform, through to pensioners, whose pension increase should be below the general wage development of the working population. The same applies to pensioners and active civil servants. Knowing full well that I will very soon be cutting my own throat. To achieve this, we need to make much more efficient use of healthcare expenditure. We have too many unspecialized hospitals that receive far too many subsidies. And we need more co-payment for nursing care. We need to get away from the situation where everything is always financed by the community fund. After all, the fund is filled by the working population - and there are fewer and fewer of them.

But these would be extremely unpopular measures...

These are measures that I would not say or implement as a politician, because then I would lose my job.

Lower income groups in particular would suffer massively.

Germany not only has the richest rich in its history, but also the richest poor. We can easily expect everyone to help themselves to some extent. It's not about abolishing the basic income support. It's about getting away from the idea of basic security without benefits. Almost everyone can and should do something. And if that's not enough, then we'll give them the rest. That has always been the idea behind our welfare state. What I mean, for example, is that it is unacceptable that in some parts of Berlin the basic welfare rate is 40 percent - but no suitcases can be loaded at BER airport just because people are missing.

The Left Party is trying the other side of the coin and proposing a wealth tax of two percent. Wouldn't that be a solution for this particular situation?

No, definitely not. For one thing, the rich already contribute an incredible amount. The top ten percent pay almost 50 percent of total income tax. Secondly, there are very practical hurdles. A wealth tax must be based on market values. This means an incredible administrative burden for the authorities, because someone has to estimate these market values. This could hardly be done, or only with considerably more staff - which in turn leads to higher costs. Half of the potential revenue would be lost again. So not a good idea on the part of the left, as is so often the case.

In addition to social benefits, you would also cut subsidies. Where would you start here?

I would end the discussion about industrial electricity prices immediately. Instead, I would give the industry more time for the energy transition - five to ten years.

But companies keep emphasizing how important the current electricity prices are for them.

Yes, and of course that's true. It's just that more than 50 percent of the electricity price is made up of taxes and levies. If we now also introduce the planned CO2 levy in full, then another 5 to 10 cents will be added. So the state is starting to subsidize what it itself makes more expensive. Absurd.

In short: So we don't have a revenue problem in Germany, but an expenditure problem?

Yes, definitely. Revenues as a percentage of GDP are higher than ever before. And then we can't manage to draw up a budget that complies with the constitution? I can't imagine that.

Other economists like Monika Schnitzer would nevertheless prefer to remove the debt brake from the Basic Law. Why are you so opposed to this?

In formal legal terms, the debt brake has constitutional status. Anyone who wants to abolish it needs a two-thirds majority - and I don't see that happening. Personally, I see the debt brake as a blessing. If we didn't have it, the dams would burst. It prevents gifts at the expense of future generations, because today's debts are tomorrow's taxes. The debt brake is what intergenerational justice in our constitution is all about.

What about a reform of the debt brake? The limit of 0.35 percent of gross domestic product, of all things, that may be taken on in new debt each year seems rather arbitrary. Do you agree?

Yes, it is indeed arbitrary and you could start here. However, I would be in favor of 0.3 percent rather than 0.4 percent.

And if we were to exclude investments more from the debt brake, i.e. investments before government consumption? Ultimately, special funds were a similar instrument - just set up unconstitutionally.

It is a myth that the debt brake prevents the necessary investments. On the contrary, it prevents even more spending on the welfare state. Think of the so-called peace dividend. We could have spent our money on the military for many years. Instead, it has ended up in the welfare state. This is just one of many problems when you think of highways, railways or other public infrastructure.

This is precisely why it would make sense to take on debt - for public infrastructure, for example. We would still be looking forward to that in years to come.

I'm not very optimistic about that. If you look at the KTF, such pots are full of subsidies and not full of investment expenditure. That's not really conducive to our industry.

Capital.de.

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1. Raffelhüschen criticizes Scholz's promise to not leave anyone alone during the budget crisis, stating that it's a nice saying but not grounded in reality.
2. The constitutionality of Scholz's budgets is brought into question due to the breach of the debt brake in the supplementary budget for 2023.
3. The Federal Constitutional Court has ruled that emergencies must be exceptional and situational, and the government has no other choice but to submit the budget for 2023.
4. Economist Rüdiger Bachmann argues that the Federal Constitutional Court's ruling on the debt brake is "macroeconomic illiteracy."
5. Raffelhüschen emphasizes the need for budget cuts to address the coronavirus-induced additional expenditure, even though the crisis has ended.
6. The FDP advocates for compliance with the debt brake, while the SPD and Greens refuse to cut social spending or the energy transition respectively.
7. Raffelhüschen proposes tackling social spending, pension increases, and healthcare expenditure to address the budget crisis.
8. The Left Party proposes a wealth tax of two percent to address financial problems, but Raffelhüschen argues that it's not a good solution due to administrative burden and practical hurdles.

Source: www.stern.de