Hole in the budget: Are the poor about to be cut?

Coalition struggle - Hole in the budget: Are the poor about to be cut?

Now it's out: according to Finance Minister Christian Lindner (FDP), 17 billion euros are missing from next year's budget. Where will it come from? On Wednesday evening, the leaders of the SPD, Greens and FDP came together for a meeting in the Chancellor's Office, but they have not yet found a solution in the one and a half hour meeting.

The fronts are hardened: While representatives of the SPD and the Greens are in favor of suspending the debt brake next year in order to be able to take out loans, the Liberals are vehemently opposed to this. In order to make an exception to the debt brake, the coalition would again have to decide on a so-called emergency situation, which includes natural disasters or extraordinary emergency situations. The FDP sees no basis for this.

For them, it is therefore about making savings in other areas. The state must be "more accurate" with the money, says Lindner. Both the Liberals and the opposition CDU/CSU are calling for social spending to be put under the microscope. We also need to talk about "where the welfare state can make its contribution to budget consolidation", says FDP parliamentary group leader Christian Dürr.

Scholz wants to "sound out scope"

Chancellor Olaf Scholz (SPD) emphasized in his government statement on Tuesday: "In your everyday life, here and now, the ruling of the Federal Constitutional Court changes nothing, completely regardless of whether you receive child benefit or Bafög, a pension or housing benefit." However, he also said that "existing leeway in the budget is now being explored", priorities are being set and "of course" expenditure is also being restricted.

The fact that the federal government's social spending is now the focus of public debate may seem obvious, as it accounts for more than a third of the budget. The Ministry of Labor and Social Affairs is expected to spend more than 170 billion euros in the coming year, with the largest chunk going on pensions and basic security in old age. That's a lot of money.

"For a constitutional budget in 2024, it will not be possible without savings in the social sector," says Jochen Pimpertz from the employer-oriented Institute of German Business in Cologne (IW) - for example, the establishment of a "Generation Capital Foundation" could be postponed. Similar to the FDP, the head of the "State, Taxes and Social Security" department at the IW sees no basis for a renewed suspension of the debt brake. However, the necessary billions could not be saved in a single item; it was a matter of "critically scrutinizing" many individual items.

At the same time, it is clear that making savings in the social sector is not an absolute necessity, but a political decision. Many of the proposals that are now circulating had already been brought into play before the Federal Constitutional Court's ruling on the debt brake - but they are more about fundamental discussions on the direction of the welfare state. Can they now acutely plug the billion-euro hole? If you take a closer look at the current demands, this is rather unlikely. The network of expenditure in this area is complex, many things cannot simply be cut and some would have far-reaching consequences in other areas. Some demands, on the other hand, are likely to be legally difficult. An overview of the battleground of social policy in the current budget debate:

Citizen's Income: In the coming year, the Citizen's Income will increase by 12.6 percent. Even before the current budget ruling, the CDU/CSU used this figure to create an atmosphere against the "Hartz IV" successor. However, the increase can be explained by high inflation. The Union itself has even agreed to the mechanism whereby the rates of the citizen's allowance are adjusted more quickly to general price increases. For economist Achim Truger, the demand for cuts to the Citizen's Income is therefore "theatrical thunder". He is one of the five so-called economic experts who advise the German government on economic policy. According to Truger, there are "strict constitutional limits" to cuts in the Citizen's Income. The Federal Constitutional Court has emphasized in several rulings that the minimum subsistence level, which is secured with the citizen's income, cannot be reduced at will. In the longer term, it will probably be more a question of increasing so-called work incentives in the system so that more people who receive the citizen's income work. This is a complicated issue - it is unlikely to provide a solution to the acute budget shortfall.
Basic child benefit: Another demand from the CDU/CSU is that the so-called basic child benefit should not be introduced in the first place. The project by Family Minister Lisa Paus (Greens) is intended to reduce the number of children living in poverty and simplify the application for benefits for families. However, abolishing the basic child benefit could only make a small contribution to the 2024 budget: the ministry has earmarked 71 million (not billion) euros for preparing the reform, which is not due to come into force until 2025. In the first year 2025, Paus then expects costs of 2.4 billion euros. The economist Truger warns against not introducing the basic child benefit: "It is a very important issue to limit child poverty," says the scientist from the University of Duisburg-Essen. Of course, the aim must be to find the "most efficient design possible". In recent weeks, the federal states and associations have voiced massive criticism of the basic child benefit. Among other things, they have complained about the bureaucratic burden that would result from the fact that the family benefits offices are to be developed into a new family service.
Mothers' pension: In the 2013 election campaign, the CDU/CSU campaigned with the "mothers' pension" and implemented this project in the government with the SPD. Since then, parents of children born before 1992 have also had their child-raising periods better recognized in their pension. In the current situation, this benefit should "not be set in stone", said the Green Finance Minister from Baden-Württemberg, Danyal Bayaz. However, economist Pimpertz from the IW does not see any significant leeway here for the 2024 budget: "You cannot simply reduce the entitlements once they have been granted. At best, the mothers' pension could be reduced for new pension entrants." In the coming year, this will "not make up a large proportion" that could contribute significantly to reducing the budget deficit. The economist Truger warns against such a step in general: "The mothers' pension works against poverty in old age," says Truger. Women with low incomes would be particularly affected by a reduction or abolition of the "mothers' pension". "This would increase the poverty risk rate and drive more people into basic income support," says the economist. Which in turn would increase the state's expenditure on basic benefits.
Retirement at 63: Veronika Grimm, a colleague of Truger's on the Council of Economic Experts, can imagine putting the retirement age of 63 up for discussion - a former pet project of the SPD and its former Minister of Labor Andrea Nahles. In the past, there have already been voices from economists calling for the abolition of the full pension after 45 years of contributions - if only because the pension system is likely to be increasingly burdened by demographic change. This does not even require an acute budget crisis. Pimpertz also sees a "certain savings potential" here. However, this is more "medium-term" and not for 2024. "In view of the skills situation, we are generally well advised to increase working life," says Pimpertz. "This not only eases the burden on pension funds, but also gives companies more options."

In contrast to economist Pimpertz, who sees at least limited scope for social spending, economist Truger believes that cutting social spending is not the right way to finance investments in the future. This is what the expenditure from the "Climate and Transformation Fund", which has now been declared unconstitutional, was intended for. According to Truger, the focus must now be on reforming the debt brake, or alternatively on anchoring a kind of "special climate fund" in the Basic Law - as the German government has set up for the Bundeswehr with the support of the CDU/CSU.

If the aim is to make savings or increase revenue, Truger - like the Greens - proposes reducing climate-damaging subsidies. The SPD, Greens and FDP have actually already stipulated in the coalition agreement that they want to abolish these. The economist also considers a "climate soli" to be conceivable, which could be at the level of the current solidarity surcharge in order to finance future investments.