Germany has to economize Cornerstones of the Federal Budget 2013
Next year the federal government will be able to meet the requirements of the basic law’s debt brake for the first time which requires a structural deficit of below 0.35 percent of GDP. In 2014 Germany could be able to give new debts a pass for the first time since 1970 and begin repaying the debt mountain.
Those are the results of a study of the Institute for the German Economy Cologne (IW) that was conducted for the Initiative for a New Social Market Economy (INSM). The study was presented on March 7th, 2012 in Berlin.
“Wolfgang Schäuble can go down in history. As the finance minister who pushes for a debt stop and reduces the debt mountain for the first time since 40 years”, says Hubertus Pellengahr, chief-executive of the INSM. “The federal government has to act upon its own austerity package and demonstrate that the debt stop will not be postponed until the next federal election.”
The study refers to the points of the2010 austerity package which were already decided but not yet implemented. According to this 11.1 billion euro of savings are not yet realized for the year 2013. In 2014 14.9 billion euro will have to be saved. Furthermore, finance minister Wolfgang Schäuble has already announced saving potentials of up to 4 billion euro. With these measures, the requirements of the debt brake could already be met in the budget year 2013 although the structural debt would ultimately rise by another 9.1 billion euro (0.3 percent of GDP). In 2014 the federal government would be able to achieve an excess of 7.3 billion euro (+0.3 percent/GDP). The federal cabinet will determine the cornerstones of the federal budget 2013 on March 21st.
According to the scientists, only the federal government profits from soaring tax revenues and low interest up until this point. Dr. Rolf Kroker, head of economic- and social policy and chief-executive of the Institute for the German Economy Cologne says: “As yet, a sustainable consolidation and savings have been omitted. Less than half of the austerity package has been implemented.”
Apart from the debt brake of the German basic law, the fiscal pact recently enacted on EU-level also demands a way out of government debt. Pellengahr: “Germany should be a role model for other countries. A debt brake is possible. With the excess in 2014, it will even be possible to tackle the existing debt mountain. In this way, there will also be leeway to finance the reduction of the so-called cold progression (the phenomenon that occurs when wage rises only compensate for inflation and income taxes are not adjusted) – this would be a helpful impulse for sustainable growth.”
The initiative wants to renew the social market economy of Ludwig Erhard and adjust it to globalization, demographic change and the knowledge society. The INSM stands for a social system of freedom and responsibility.