German finance minister: 2024 budget just a first step in fiscal normalization
2023.09.05 07:51
© Reuters. German Finance Minister Christian Lindner speaks during a plenum session of the lower house of parliament, Bundestag, to present the 2024 budget and financial planning of the Federal Government, in Berlin, Germany September 5, 2023. REUTERS/Annegret Hilse
By Maria Martinez
BERLIN (Reuters) -Germany’s budget for 2024 is just a first step towards the normalization of fiscal policy, necessary in the face of rising borrowing costs, German Finance Minister Christian Lindner said on Tuesday.
Europe’s biggest economic power is aiming to curb spending that surged in response to COVID-19 and a run-up in energy prices triggered by the Ukraine war. Lindner plans to comply with Germany’s debt brake that constitutionally limits structural budget deficit to 0.35% of economic output. The brake was suspended between 2020 and 2022 to help deal with the crises and restored this year.
“We need to recognise our new fiscal realities,” he said while presenting the draft for the 2024 budget and financial plans through 2027 to parliament. “We need to refocus,” he told parliament’s lower house, the Bundestag.
“The issue is the return to the debt brake or, more precisely, to sustainable public finances in the long term.”
Lindner said the clearest signal change in fiscal policy was necessary was the increase in interest rates.
Germany expects to pay 37 billion euros ($39.77 billion)in interest rates next year, which Lindner said was a tenfold increase compared to the year 2021 and an amount twice as high as the budget of the Ministry of Education and Research.
“The message is therefore clear: we simply cannot afford to run up new debts without limit; they would be impossible to finance,” Lindner said.
Some economists say the debt brake hinders investment but Lindner said it was not the case.
“The debt brake is not a brake on investment, but it does force us to set priorities,” Lindner said.
The new budgetary plans include 54.2 billion euros in investments in 2024, above the investment level of 38 billion euros in 2019, before the crisis started, and rising to 57.2 billion in 2027.
The Bundestag lower house of parliament is meeting to discuss the budget and financial planning this week.
The deadline for the Bundestag to decide on the entire federal budget will be Dec. 1.
Between now and then, the draft budget is likely to change significantly, in part to take into account the new tax estimate due in October and updated economic forecasts.
($1 = 0.9304 euros)
