Lindser aims to substantially increase borrowing by 2025.
The Federal Finance Minister, Christian Lindner, is preparing to accrue an additional €56.5 billion in debt for the following year, which is €5.2 billion higher than the initial forecast announced in the government's draft. This surge in debt is reportedly due to a less optimistic economic outlook, enabling higher borrowing within the debt limit, as per a recent report by "Spiegel."
According to the ministry's revised calculations, Lindner's budget for 2025 includes a net credit increase of €56.5 billion, €5.2 billion more than the initial estimate. The economic downturn documented in the federal government's autumn forecast, presented by Economics Minister Robert Habeck, allows for increased borrowing under the debt brake due to weaker growth predictions compared to the spring estimates.
The financial boost from the debt brake has been necessitated by lower tax revenues and elevated spending resulting from higher unemployment rates. The new debt does not serve to reduce the existing €12 billion financing gap in Lindner's budget, as reported by the magazine.
The Bundestag will deliberate on the new debt increase in the budget negotiations. The net credit increase encompasses a cyclically independent deficit of 0.35% of GDP, equivalent to €14.4 billion. Additionally, there is the cyclical component of €15 billion. Lindner also plans debt-financed financial transactions, totaling €27.1 billion, such as increased equity investments for the railway, which fall outside the debt brake due to offsetting liabilities and assets of the same value.
Habeck advocates for debt brake reform
In Habeck's opinion, a reform of the debt brake could aid the German economy in overcoming the crisis. He believes that the most efficient and expedient growth tool is investment incentives, as advocated by the Green politician during his address in Berlin on Tuesday. However, the debt brake included in state constitutions and the federal budget places limitations on such investment incentives. "In the presence of more leeway, our economy would certainly extract itself from the predicament," Habeck predicted.
Lindner, conversely, stressed that "growth cannot be purchased with debt." Germany does not possess a cyclical economic issue that the state can ameliorate through augmented demand, but rather a structural problem.
The additional debt accumulation of €56.5 billion, as proposed by Lindner, falls under the purview of The Commission, which will oversee its implementation due to the debt limiter regulations in the federal budget. In light of Habeck's advocacy for debt brake reform, The Commission's role in managing the new debt becomes crucial in determining whether the proposed reforms will impact its handling procedures.
