What should we make of this budget?
In the last printer, the traffic light coalition reaches an agreement on the budget and economic relief measures. The latter contain good ideas that could move the country forward. However, achieving the square of the circle only happens when many variables are left open. This is a risk for the country and the government.
What a homemade drama! Beyond the SPD's demand for clarity for Bundestag members before the parliamentary summer break, there was no objective compulsion for a budget agreement this week. Only due to this SPD ultimatum did Federal Chancellor Olaf Scholz, Federal Minister of Economics Robert Habeck, and Federal Minister of Finance Christian Lindner as representatives of their parties have to reach an agreement unconditionally in the early hours of July 5th.
And look at this: A breakthrough occurred in the earliest morning hours. A package full of good ideas keeps the traffic light coalition alive and holds many good chances. However, the risk of a crash landing remains.
First, to the positive: The Growth Initiative consists of 49 proposals, some of which are already old and long on the way. Much is also new and represents a real paradigm shift or at least an insightful correction. For example, the simplified access to the labor market for specialists and refugees, who will be able to work two weeks after applying for a permit - if the Foreigners Office does not object. Tax incentives for employers for overtime work are to be tax-free. Those who continue to work after reaching retirement age are to receive employer contributions to social insurance. The possibility of additional pension points is also being considered. And to make work pay, long-term unemployed are to receive additional subsidies upon employment.
A Conjunctural Boost of Half a Percentage Point
The proposals for greater tax deductions for companies on investments and for more research grants are evaluated by economists as significant in initial assessments. Added to this are further agreements on the reduction of bureaucracy and the streamlining of the Supply Chain Act. Entrepreneurs grumble about the documentation requirements. The employment of a data protection officer only from 50 instead of already at 20 employees is a progress for smaller companies in this context. It seems that the coalition has finally heard the complaints of the economy about disproportionately many shackles.
All these and other measures combined, the coalition dares a rise in economic growth from 0.4 to 0.9 percent. That's strong. And that's where the problems begin: Of course, the additional revenues resulting from higher economic growth are just as integrated into the budget as the assumed reduction in social benefits. All the laws that have to pass through the parliaments in a rush do. In the case of corporate tax deductions, the federal states must also participate in the Bundesrat, from whom high revenues will be lost due to similarly tight budgets.
Does the SPD go along with this?
It's interesting to see if the SPD faction will contribute to the agreed-upon social welfare increases. Or if the anger over Scholz not pushing through the suspension of the debt brake is making concessions more difficult. Their own ministers, in particular, have been particularly disappointed with the negotiations: Federal Defense Minister Boris Pistorius and the ministers responsible for development aid, Svenja Schulze, have received significantly less for their portfolios than they demanded. The trio has also left open where the additional 28 billion Euros, which are to flow from the federal budget to the Bundeswehr starting in 2028, will come from. But the obligation to adhere to the NATO's two-percent target remains.
Furthermore, Foreign Minister Annalena Baerbock only agreed to cuts because she was promised funds from a supplementary budget for humanitarian aid. It is also unclear how the transfer of EEG compensation payments from the Climate and Transformation Fund into the budget will affect the situation: The compensation promise to producers of renewable energy is a volatile quantity. If electricity market prices drop significantly, the allocated 17 billion Euros will not be enough. The budget, however, is running on a tight rope this time. Larger reserves do not seem to have been planned.
Is the budget being put to the truth test?
Additionally, there is still a gap of over 16 billion Euros. Eight billion Euros are being held in the hope that not all of the provided funds will flow into the ministries. Another eight billion Euros are to be covered by subsidies to federal corporations such as the Autobahn GmbH in the form of loans. These types of debts would likely not fall under the scope of the debt brake. Whether this is the case will only become clear during the planned passage of the budget on July 17.
SPD fraction leader Rolf Mützenich reminded the assembled faction after the presentation of the rough budget draft by the Chancellor that the Bundestag has budgetary sovereignty. He will put the cabinet's proposal to the test for "budget truth and budget clarity." He stated that he had already discovered many "tricks and gimmicks" at this point. Message: No tricks and gimmicks! Mützenich does not explicitly mention a discussion on the suspension of the debt brake again. Then everything would be back to square one, good ideas here and there.
- The FDP, represented by Robert Habeck and Christian Lindner, played a significant role in the budget agreement, pushing for economic stimulus programs.
- Svenja Schulze, from the SPD, had previously demanded clarity on the budget before the parliamentary summer break.
- The traffic light coalition's budget agreement includes a package of economic relief measures with ideas that could improve the country's economic situation.
- The Growth Initiative, a part of these measures, includes proposals to simplify access to the labor market and provide tax incentives for overtime work.
- Christian Lindner's party, the FDP, advocated for reducing bureaucracy and streamlining the Supply Chain Act, which was met with approval from entrepreneurs.
- Olaf Scholz, as the Federal Chancellor, and his colleagues had to reach an agreement under pressure from the SPD's ultimatum, a significant event in German politics.
- Rolf Mützenich, the SPD fraction leader, vowed to put the cabinet's budget proposal to the test for "budget truth and budget clarity," signaling a potential challenge to the proposed measures.
- Boris Pistorius, the Federal Defense Minister, and other ministers from the SPD were disappointed with the negotiations, leading to uncertainty about funding for their portfolios in the agreed-upon budget.
