Is the debt brake a good or a bad idea?
The debt brake is causing controversy. Some want to abolish it as quickly as possible, while others are holding on to it resolutely. In an interview with ntv.de, economist Philippa Sigl-Glöckner explains why a reform is the better solution and what the debt brake of the future could look like.
ntv.de: Politicians are arguing about the debt brake. There seem to be only two positions: ardent supporters and vehement opponents. Which side are you on?
Philippa Sigl-Glöckner: Neither of them. It is absolutely sensible and necessary to have a rule for government borrowing. The debt brake is actually quite progressive in part, as it allows for Keynesian fiscal policy. The state is allowed to take on more debt if the economy is underutilized and unemployment is high. In return, the state should make savings when the economy is operating at full capacity. That is a good idea and should be implemented. Nevertheless, the debt brake should definitely be reformed.
Why?
The question is: when is an economy operating at full capacity? The debt brake's answer is when people are working at roughly the same rate as in the past.
And that's not a good basis?
No. If only because the labor force participation of women in Germany used to be lower than that of men. The image of society has now changed. More women want to work. More importantly, one of the biggest financial challenges is future pensions. The main issue is that pensions are too low for women who have paid in little in the past and therefore face a considerable pension gap. The state must subsidize this from the federal budget. Pension subsidies currently amount to 130 billion euros. The federal government should definitely tackle this problem by ensuring that all those who can and want to do so work in jobs with the best possible qualifications. Because the more people earn enough for their pension, the less the state has to support. Investment in education and training is therefore particularly important today.
What is your proposal?
If politicians do more to increase employment potential, then they should be given more leeway in terms of debt within the framework of the debt brake. One example: If more daycare places are provided and more women can work as a result, then the scope for debt will also increase. This is because the economy's potential is then higher than before. Incidentally, the opposite would happen if retirement at 60 were introduced. This would reduce the scope because the potential for work would disappear. However, this is not the only reason to reform the debt brake.
Supporters of the debt brake argue: It sets tight limits on government debt and prevents a government from throwing money down the drain.
The debt brake does not limit government debt. It limits the government's new debt, i.e. how much more it spends in the budget than it takes in. However, new borrowing is only one factor that influences the development of the debt ratio - interest rates, growth and inflation often play a greater role.
The debt brake limits the federal government's net borrowing to 0.35 percent of gross domestic product. Does it make sense to link the permitted new borrowing to a specific ratio?
Good financial policy cannot be defined by an algorithm. The debt brake in its current form allows politicians to evade responsibility. They claim that we are complying with the debt brake and therefore our financial policy is good. And if the brake is not adhered to, the financial policy is bad. But it must be about interpreting the debt brake and explaining the how and why to the population. The Basic Law contains a few sentences on the debt brake. The rest is a matter of interpretation in the form of laws and regulations. I would like to see a discussion about how we can shape the debt brake in such a way that it fits our times and enables us to respond appropriately to the very great challenges we face.
What do you consider to be good financial policy?
It considers which expenditure is currently sensible, sustainable and affordable. It is important to answer this question. Numerous factors have to be taken into account. Companies are also constantly asking themselves such questions: What am I spending money on? How high are my capital costs? How is the budget structured? What do we want to achieve? What are the risks? It's all very complex. That's why I'm surprised when Germany's financial policy is based on an arbitrary figure.
For reasons of debt sustainability, should the state only spend the money it earns?
Why should it do that? No kiosk owner would act like that. He also has to invest and usually takes out a loan to do so. But there is another, more fundamental point: government debt is very different from private debt. The kiosk owner has to make sure that he earns enough to be able to service his loan. The state produces the money with which it pays its loan itself, it cannot go bankrupt.
According to the Ministry of Finance, Germany does not have a revenue problem, but an expenditure problem. Instead of talking about more debt, we need to talk about what the money is being spent on.
Of course we need to talk about whether the state is spending the money wisely. In this country, we could certainly have better processes to ensure this. Other countries are already much further ahead in this respect, for example they have institutions outside the government that scrutinize individual expenditures. Unfortunately, the quality of spending plays a much smaller role in this country than the absolute debt limit.
Can you explain this with an example?
Let's take the planned Intel plant in Magdeburg. The federal government is funding the factory with ten billion euros. With so much money, you should first clarify what this subsidy will actually achieve. How many jobs will be created? How high will the tax revenue be? How will suppliers and other sectors of the economy benefit? My hope is still that this calculation exists, I just don't know it.
So does Germany only have a spending problem and the debt brake forces it to set the right priorities?
That is what is repeatedly claimed. But the mechanism is not clear to me in theory, nor has it worked in practice. Even under the debt brake, priority is given to the expenditure backed by the strongest political interests, not the expenditure with the greatest economic benefit. Let's take the example of environmentally harmful subsidies - including the diesel privilege and the commuter allowance. These are worth 40 billion euros. So we are subsidizing CO2 emissions with 40 billion instead of putting the money into the decarbonization of transport and the car industry. That contradicts the climate targets. But there is a political force behind every single subsidy. That is why it is so difficult to actually reduce these subsidies. It is not the debt brake that helps here, but a direct look at the political balance of power.
But shouldn't the rapid rise in interest rates be a warning?
You have to look at interest rates. But interest rates are not rising so rapidly. The figures from the Federal Ministry of Finance look particularly high due to a special accounting technique. In recent years, many government bonds have been sold at a very high price, but also at a high interest rate. For example, investors paid the state 130 euros for a bond that was actually only worth 100 euros and received a high interest rate in return. In the government's accounts, this extra 30 euros in income is completely offset against today's interest payments and makes them look particularly low - the future higher interest payments are ignored. If the interest is accounted for in such a way that it actually approximates the current costs of government debt, the interest has not risen from €4 billion to €40 billion within two years, but from €21 billion to €34 billion.
Is it part of intergenerational justice not to pile up a mountain of debt for future generations?
How can it be generationally fair to leave our children with dilapidated schools, a lousy infrastructure and an economy that is losing growth potential? Germany is lucky enough to pay very low interest on its national debt. As long as we have growth, the debt will fall by itself. However, a loss of economic substance is very difficult to make up for. Fiscal policy is always fraught with risk, it is a question of weighing up the pros and cons. And in my view, we too often set the wrong priorities here.
Jan Gänger spoke with Philippa Sigl-Glöckner
Lesen Sie auch:
Source: www.ntv.de
