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In the dispute over the debt brake, a new proposal comes from Habeck

2023-12-06T04:17:35.548Z

Highlights: In the dispute over the debt brake, a new proposal comes from Habeck. State should pay development companies a fixed amount for investments. The separation between consumer spending and investment is to be monitored by an independent panel of experts or the German Federal Court of Auditors. The federal government will also have to plan to finances for a longer time in the future. Instead of three years, as currently, the state will ultimately have to pay for the railway's debts. After all, "non-transparent" policy of Deutsche Bahn is a "deterrent" example.



Status: 06.12.2023, 05:06 a.m.

By: Momir Takac

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In order to solve the budget crisis, the debt brake is also being debated. An advisory committee led by Robert Habeck is now proposing key changes.

Berlin - The debt brake enshrined in the Basic Law is both a blessing and a curse. On the one hand, it obliges to maintain budgetary discipline, and on the other hand, it can prevent urgently needed investments. This dilemma is also faced by the traffic light coalition, which is looking for solutions to the budget crisis. Now the Federal Ministry of Economics, led by Robert Habeck, is proposing a reform.

Robert Habeck's advisory committee proposes reform of the debt brake

The Scientific Advisory Board, which is independent and advises Habeck, has spoken out in an expert opinion in favour of far-reaching adjustments to the debt brake. In the analysis, which is available to Handelsblatt, experts write that the debt brake in its current version creates "false incentives". The Advisory Board criticizes the current practice of the Federal Government of creating financial leeway through special funds as "unsustainable" and advocates its stop by the Federal Constitutional Court.

From the house of Robert Habeck (left) comes a proposal for the reform of the debt brake. © picture alliance/dpa | Kay Nietfeld

In their report, the economists call for a reorientation of fiscal policy and present two central proposals for changing the debt brake, which FDP leader and Federal Finance Minister Christian Lindner does not want to shake at all. Both relate to investments that, according to the panel, should no longer be covered by the debt rule.

Net investments should not be subject to the debt brake

For example, the advisory board brings a "Golden Rule Plus" into play. According to the online magazine Makronom, the "golden rule" in fiscal policy is "that debt can be built up to the extent that future generations receive assets or growth opportunities through investment." One way to implement this is to finance investments through loans, while other expenditures are covered by the budget.

Habeck's advisers, who are not calling for the abolition of the debt brake like other economists, are now proposing to consider these expenditures separately. For investments that are made for the first time and thus expand the economic substance (net investment), it will be possible to take on debt of any amount, while the debt brake will continue to apply to consumer expenditure - including social spending and transfers. This would eliminate "distortions" to the detriment of younger generations that arise when social transfers are prioritized over profitable investments.

Reform proposal: State should pay development companies a fixed amount for investments

In its report, the advisory board explicitly states that expenditure on existing buildings, such as renovations of the transport infrastructure, will be financed from the core budget. The separation between consumer spending and investment is to be monitored by an independent panel of experts or the German Federal Court of Auditors.

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As a second key point for the reform of the debt brake, the committee mentions investment promotion companies. The idea is that the state pays companies a fixed amount each year, which they distribute solely for investments, for example to municipalities. This should be fixed by law for several years. Here, too, an external organization should keep an eye on it.

Habeck advisers call structures at Deutsche Bahn a "deterrent example"

Investment promotion companies should be distinguished from investment companies, as they can be found in the coalition agreement of the traffic light government. At this point, the advisory board mentions Deutsche Bahn, which is 100 percent owned by the federal government. It operates outside the debt brake and is allowed to incur its own debt. For the Scientific Advisory Board at the Federal Ministry for Economic Affairs, Deutsche Bahn is a "deterrent example" of "non-transparent financial policy". After all, the state will ultimately have to pay for the railway's debts.

In addition, the Advisory Board calls for greater consideration to be given to investment expenditure in the current reform process of the EU debt rules. The federal government will also have to plan finances for a longer period of time in the future. Instead of three years, as is currently the case, planning is to be carried out for the following two legislative periods. (mt)

Source: merkur

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