What should we make of this budget?

In the last printer, the traffic light coalition comes to an agreement on the budget and economic relief measures. The latter contain good ideas that could move the country forward. However, the square of the circle only works if many variables are left open. 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 Economic Minister Robert Habeck, and Federal Finance Minister Christian Lindner as representatives of their parties have to reach an agreement unconditionally in the early hours of July 5th.

And look at that: A breakthrough occurred in the early morning hours. A package full of good ideas keeps the traffic light coalition alive and brings 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 have been on the way for a long time. Much of it is also new and represents a real paradigm shift or at least an insightful correction. For example, the significantly simplified access to the labor market for specialists and refugees, who will be able to work two weeks after applying for permission - if the Foreigners Office does not object. Tax incentives for employers for overtime work will be tax-free. Those who continue to work after reaching retirement age will receive employer contributions to social insurance. The possibility of additional pension points is also being considered. And to make work worthwhile, long-term unemployed individuals will receive additional subsidies upon employment.

A 0.5 percentage point economic boost

The proposals for more tax deductions for companies on investments and for more research grants are evaluated by economists as significant in initial assessments. In addition, there are agreements to promote bureaucracy reduction and the simplification of the Supply Chain Act. Entrepreneurs grumble about 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 traffic light coalition has finally heard the complaints of the economy about disproportionately many shackles.

All these and other measures combined, the traffic light 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 much integrated into the budget as the assumed reduction in social benefit recipients. All the laws that need to pass through the parliaments in a hurry must be implemented. Above all, the corporate tax deductions require the participation of the states in the Bundesrat, which will lose high revenues with 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 are particularly disappointed with the results of the negotiations: Federal Defense Minister Boris Pistorius and the ministers responsible for development aid, Svenja Schulze, receive significantly less for their portfolios than they demanded. The trio has also left open where the additional 28 billion Euros, which will flow from the federal budget to the Bundeswehr starting in 2028, will come from. After all, the special fund has been used up. The obligation to maintain the two-percent NATO target still applies.

Furthermore, Foreign Minister Annalena Baerbock only agreed to cuts because she was promised money from a supplementary budget for a humanitarian emergency. It is also uncertain how the transfer of EEG compensation payments from the Climate and Transformation Fund into the budget will affect things: 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. However, the budget is particularly tight this time. It seems that larger reserves were not 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 hope that not all of the provided funds will flow into the ministries. Another eight billion Euros are to be secured by providing loans to federal corporations such as the Autobahn GmbH. These types of debts would likely not fall under the scope of the debt brake. Whether this is the case will only be clear at the latest when the budget is planned to be passed on July 17.

SPD faction leader Rolf Mützenich reminded the assembled faction after the presentation of the rough budget draft by the Chancellor that the Bundestag has budgetary sovereignty. This body will examine the proposal of the cabinet on "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 was instrumental in pushing for the inclusion of economic stimulus programs in the budget agreement.
The SPD's demand for clarity on the budget and economic relief measures before the parliamentary summer break was a key factor in the negotiations.
Svenja Schulze, a SPD minister, expressed disappointment with the results of the negotiations, particularly in regards to her portfolio's funding.
Robert Habeck and Christian Lindner, representing the SPD and FDP respectively, played significant roles in reaching the budget agreement.
Olaf Scholz, as the Federal Chancellor, was a key figure in negotiating the budget and economic relief measures.
Rolf Mützenich, the SPD faction leader, emphasized the Bundestag's budgetary sovereignty and warned against tricks and gimmicks in the budget proposal.
The traffic light coalition's budget policy includes measures to promote the labor market, such as tax incentives for overtime work and simplified access to the labor market for specialists.
The package of economic relief measures includes proposals to boost economic growth, such as tax deductions for companies on investments and research grants, but these initiatives require the cooperation of the Bundesrat and may have funding implications for the states.