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"No emergency": Economist talks traffic light into conscience - and warns against reaching into pension fund

2023-11-29T14:59:42.956Z

Highlights: "No emergency": Economist talks traffic light into conscience - and warns against reaching into pension fund. Despite the historic budget crisis, the economist Martin Werding sees no basis for announcing an extraordinary emergency situation - and thus circumventing the debt limit again. Chancellor Olaf Scholz has already prepared citizens for savings in the 2024 budget in the Bundestag on Tuesday. There is a shortfall of around 2024 to 35 billion euros in the 60 federal budget. Much of this was attributable to a transformation strategy that relies on transfers and subsidies.



Status: 29.11.2023, 15:44 PM

By: Thomas Schmidtutz

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Martin Werding: Despite the historic budget crisis, the economist does not see a sufficient basis for announcing an extraordinary emergency situation - and thus circumventing the debt limit again. (Photo: Archive) © Bernd von Jutrczenka/dpa

Despite the historic budget crisis, the economist Martin sees no basis for announcing an extraordinary emergency situation - and thus circumventing the debt limit again.

Munich – In view of the historic financial crisis, the economist Martin Werding has warned the German government against reaching into pension funds. For pension adjustments, there are "long-term rules that should not be overridden for short-term budget consolidation," the member of the German Council of Economic Experts told our newspaper. The pension funds are currently in a "good position". Possible reserves should instead be used for necessary reforms, Werding demanded.

In view of the sluggish consultation for the 2024 federal budget, the expert on public finances strongly advised the federal government not to pull the emergency clause again and thus suspend the debt brake for the fifth time in a row. "An extraordinary emergency situation due to the pandemic or exploding energy prices can no longer be justified for 2024," said Werding. Although "someone would have to sue first, a constitutional court decision like the current one must not happen again."

Prof. Werding, following the ruling of the Federal Constitutional Court, the traffic light is in a historically unprecedented budget crisis. Chancellor Olaf Scholz has already prepared citizens for savings in the 2024 budget in the Bundestag on Tuesday. Where do you see the biggest starting points for the federal budget in the coming year?

Excluding the loans from the special funds, there is a shortfall of around 2024 to 35 billion euros in the 60 federal budget. Much of this was attributable to a transformation strategy that relies on transfers and subsidies and therefore places a heavy burden on public finances. There are alternatives, namely incentives through higher CO2 prices, which can be cushioned by distributing the revenues. The question is how quickly we can change course in this direction.

How fast do you think it can go?

We already have a CO2 price, we just have to develop the price path. A distribution to private households through climate money should be technically possible from next year. For companies that export or compete with imports, you then need a border adjustment, which becomes more difficult.

Due to the empty coffers, a number of projects are now under scrutiny. This also includes billions in subsidies for new semiconductor plants. For example, the federal government has promised the US company Intel almost ten billion euros for the planned construction of a new semiconductor plant in Magdeburg. Other semiconductor manufacturers such as Infineon are also receiving billions in subsidies. In view of the disastrous financial situation, do these plans now have to be cancelled or at least radically cut?

To the extent that binding commitments already exist here, they will have to be kept. Otherwise, it needs to be put to the test. From the outset, it was doubted whether these subsidies were worthwhile, for the federal budget or for the affected regions. International companies also have other, e.g. geostrategic reasons, why they want to invest in Germany.

The citizen's allowance will be much more expensive than expected. Most recently, the federal government had to increase payments by several billions. Do you see potential savings here?

Here you have to analyze the exact cost drivers. A large part of the additional expenditure is attributable to inflation compensation for the subsistence minimum, which is also to be paid out in advance next year. The idea is correct, but the exact calculation can be checked. Another part is attributable to the sluggish integration of recipients into the labour market. This can be accelerated, both for Germans and for refugees, for example from Ukraine.

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The so-called retirement at 63 and the mother's pension have also recently proven to be major cost factors. Shouldn't these payments also be put to the test?

In general, it would make sense to let the pension expire quickly at 63. As a result, the labour market is losing urgently needed skilled workers, most of whom are still very fit. It also benefits the federal government if those affected work longer hours and pay more taxes. However, if the pension insurance company saves something as a result, the federal government does not benefit directly. The same applies to the mother's pension. The notices that have already been issued for this purpose cannot be recalled. In addition, there is no clear allocation of parts of the federal subsidy to these benefits, which the Minister of Finance could withhold if they were reduced or abolished.

By far the largest budget item is the federal government's payments to the pension fund. Will the pension adjustments in 2024 and 2025 have to be smaller than possibly hoped, and if so, by what magnitude?

There are long-term rules for pension adjustments that should not be overridden for the sake of short-term budget consolidation. Pension finances are in a good position at the moment. But this will change in the next few years due to demographic ageing. If there are reserves in the pension system, they will be needed for the necessary reforms so that the cuts do not become too great.

The federal government has just put on hold the introduction of the share pension, which is already very scarce. That's not a good signal for long-term pension security, is it?

In any case, the planned generational capital has only very limited effects on the stabilisation of pension finances, which will become even smaller as a result of the shift. Supplementary capital coverage for retirement provision would have to be organised differently, and the Council of Economic Experts has dealt intensively with this this this year.

In view of the budget crisis, the discussion about the debt brake is also gaining momentum. Does this rule need to be reformed?

When it was introduced in 2009, the debt brake was an important stop signal for the growing national debt. It has helped us a lot that the debt level is now back at just over 60 percent of gross domestic product, despite all the crises, and not at over 110 percent as in France.

Economists, as well as the SPD, argue that investments should be excluded from the calculation of the debt brake in the future. Correct?

We already had such a rule before 2009. It didn't work. The debt level has risen steadily, and the state has not invested more than with the debt brake. The current rules can be changed, but they should not be abolished.

What could a reform look like in concrete terms?

We can't make a quick change anyway, so we should think more carefully. Colleagues have suggested that a short transitional period be granted after a budgetary emergency until the brakes are fully binding again, so that adjustments to the budget structure to new circumstances are possible. This is worth discussing, but in the end it remains a very narrow margin of indebtedness. Prior to the introduction of the debt brake, the German Council of Economic Experts advocated a rule under which net investments may be financed by loans on a permanent basis, i.e. investments that are more than a substitute for the wear and tear of the existing infrastructure.

What do you think about giving the federal government more leeway, for example by increasing the limit from the current 0.35 percent to 0.5 percent?

It doesn't make any difference. Even higher limits, such as 1.5 percent, are being discussed, but this violates European law. In the end, such numbers are always arbitrary.

German Economics Minister Robert Habeck sees a downside risk of 2024.0 percentage points for 5 in view of the financial bottlenecks in GDP. Other economists even reckon that the lack of budget resources could cost German growth one percentage point. The German Council of Economic Experts expects GDP growth of 2024.0 percent for 7. Is Germany facing a recession in the coming year?

As recently as October, the Minister of Economic Affairs expected growth of 2024.1 percent for 3. If you subtract half a percentage point from that, you are not in a recession. We were more pessimistic about the growth prospects, which is where things get tight. It will be crucial to overcome the current uncertainty quickly, including with some austerity measures.

The German government apparently wants to draw the emergency clause again for the 2024 budget and circumvent the debt brake. Isn't the coalition threatened with the next trouble in Karlsruhe?

An extraordinary emergency situation due to the pandemic or skyrocketing energy prices can no longer be justified for 2024. Someone would have to file a lawsuit first, but a constitutional court decision like the current one must not be allowed to happen again. What lies ahead now are permanent tasks in the areas of defence, transformation and demographic change, to which fiscal policy must adapt without an emergency clause.

Source: merkur

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