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The Coalition, the Budget and the Debt: Towards a New Reality

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The federal budget for 2023 is (almost) a done deal. After the usual four-day mammoth debate, the Bundestag will decide on the figures on Friday. But what is in this budget is not everything. It only depicts part of what the federal government plans to do in the coming year and beyond.

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Like no government before, the coalition of SPD, Greens and FDP has agreed to make a kind of double-entry bookkeeping the basis of their budgetary policy. She works with a number of special funds – this instrument is also called a secondary budget. And this is where the discomfort with the traffic light strategy begins.

In principle, there is nothing to be said against financing via special funds. Transparency does not have to fall by the wayside. They are under the control of Parliament. However, secondary budgets are less flexible to use than the regular budget, which MPs can move according to their ideas. Special funds usually contain earmarked funds. This is an advantage and a disadvantage at the same time. On the one hand, the binding creates clarity about the use. But it can result in money set aside for limited purposes being misplaced — because it needs to be spent somehow.

Three large special pots

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The climate and transformation fund, one of these special funds, (when it was still called the energy and climate fund) constantly had the problem that funds were left unused. He may still have it in the future.

There are similar indications for the Bundeswehr special fund – 100 billion euros are earmarked for armaments, for the time being only a good eight billion will be used. An invitation to the ministry and the politicians in parliament to fulfill their wishes – with possibly completely different goals when the Ukraine war is over, to which the special fund owes its existence.

The situation is somewhat different with the third major side budget that the traffic light approves. The 200 billion euros that are now being used to fill the Economic Stabilization Fund (WSF) to finance the energy price brakes and other support measures are to be understood as a pot that is designed to cover all eventualities. These funds can, but do not all have to be used. However, it can be assumed that the majority will actually be used in 2023 and the year after – here too with the risk of waste.

Almost two trillion federal debt

All of these special funds are exclusively or largely financed by loans. Since it started almost a year ago, Olaf Scholz’s government has taken on a gigantic amount of new debt of around 550 billion euros. 360 billion of these are in the three special funds mentioned, 140 billion in new debt are in the budget for the current year, and another 45 billion are to be added in 2023. That is more than the regular budget for 2023, which envisages spending of 476 billion euros.

The traffic light did not take on this extreme new debt out of sheer carelessness, there were and are reasons for it – pandemic management, Ukraine war, mega-inflation. The danger lies in the future. The zero-interest phase is over, loans cost more again. Three percent interest on government bonds in the coming years can be seen as a return to normality.

Before the pandemic, the federal government was in debt with a trillion euros, soon it should be two trillion. A doubling within a few years. Future budgets are thus massively burdened – by repayment obligations and higher interest rates. This has not yet really arrived in politics. But it’s the new reality.

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Source: Tagesspiegel

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