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    How the traffic light has built a balanced budget

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    The Federal Cabinet has approved the draft budget for 2023. What Finance Minister Christian Lindner (FDP) presented to his colleagues borders on a small budgetary miracle. After weeks of wrangling over the individual budgets, after hard debates about compliance with the debt brake, after the cabinet decision had been postponed by more than a week, a draft was on the cabinet table that the SPD, Greens and FDP can describe as a success of their own efforts.

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    Lindner himself proudly announced the decision on Twitter: For the first time since 2019, the debt brake will apply again next year. That was the main concern of his party.

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    The small miracle is on the one hand the result of an exercise in creative budgetary policy, on the other hand the simple fact that the draft cannot yet reflect the risks and challenges that are likely to arise in the autumn – not least a significant decline in economic growth, which the first research institutes already know predict.

    For the time being, Lindner can therefore claim that the draft will again comply with the debt brake from 2023. 17.2 billion euros in new loans are now possible. The key figures for the next budget, which the cabinet approved in early March, still included a sum of 7.5 billion. One reason: The growth forecast, which was revised downwards in April, gave the government leeway – if the economic curve points downwards, the debt brake allows more new debt. Should the traffic light be forced to further lower its autumn forecast because of the Ukraine war and the gas crisis, Lindner can take out even more new loans.

    Higher expenses

    Another part of the budget miracle is that, despite all the crises this spring, spending has not decreased but increased compared to March. In the key figures, 412.7 billion euros were still noted in this item for 2023. Now the traffic light wants to spend 445.2 billion euros – so Lindner met additional demands from cabinet colleagues. Two weeks ago, the Ministry of Finance put this at more than 25 billion euros, later at eleven billion. Now it is 32.5 billion more, although interim resolutions by the coalition had to be taken into account – such as a reserve for security of supply for natural gas in the amount of 5.4 billion euros. And that means higher spending in the finance minister’s own area – see below.

    Lindner can underlay the higher expenses with the higher income resulting from the tax estimate from May. In March, tax revenue of 350 billion euros was still estimated in the key figures. The Minister of Finance is now calculating at 362.3 billion euros. The next tax estimate will show whether this can be maintained when the economy weakens again. It takes place in November.

    Nest egg tapped

    In order to balance the budget, Lindner also had to use a kind of emergency fund. In the surplus years since 2014, a reserve had accumulated that was formally to be used to cover refugee costs incurred after 2015. In fact, it has been extended every year and even bigger. The traffic light can draw on a maximum of 48.2 billion euros. In the key figures, Lindner wanted to divert 28 billion. Now it should be 40.5 billion. The disadvantage: the nest egg has now been used up a year earlier than planned. The reserve will now be released with a final tranche of 7.7 billion in 2024.

    One of the adjustment screws that Lindner uses to cover the budget without increasing new debt is the reintroduction of a flat-rate job saving of 1.5 percent. To cover the spending requests of his colleagues, he has also planned a flat-rate provision for additional expenses caused by the crisis of five billion euros.

    Playing with the interest expense

    The Treasury also likes to build up a bit of leeway when it comes to interest expenditure, by tending towards the upper end of expectations. In this way, it can ward off demands from the cabinet and counteract declining revenues without major savings. In this part of the budget, the federal debt, Lindner plans to spend almost 30 billion euros. According to the budget draft, the interest payments on federal bonds will not increase at all, they will even fall again slightly, because more and more of these bonds could recently be issued with a zero interest coupon – this will relieve the budget for years to come. The new borrowing this year – almost 140 billion in the budget and 100 billion in the Bundeswehr special fund – does not seem to increase interest expenditure significantly in 2023.

    However, Lindner expects spending on inflation-indexed bonds to increase tenfold – i.e. those whose interest rates are based on price developments. He estimates additional expenditure here of 7.6 billion euros, after 735 million euros most recently in 2021. And he now expects 8.5 billion euros for price reductions when issuing new bonds – that hasn’t happened in years. Instead, the federal government could still earn with price increases.

    Union: A single castle in the air

    As is always the case with such assumptions, it is unclear whether this total expenditure of 16 billion euros will actually make it from target to actual in 2023 in full. But in budget circles in the Bundestag it can be heard that Lindner should have at least built up a small buffer here.

    The budget spokesman for the Union faction sees the draft quite critically: “The budget is unsound and a single castle in the air,” said Christian Haase to the Tagesspiegel. “Compliance with the debt brake is only on paper. By autumn at the latest, the Federal Minister of Finance will be overtaken by the political developments. A supplementary budget will then have to follow. This means that the draft budget already has an expiration date.”

    Source: Tagesspiegel

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