Germany approves 2023 budget with debt brake suspension

By Holger Hansen and Maria Martinez

BERLIN (Reuters) -Germany approved on Friday the 2023 supplementary budget, with the suspension of a self-imposed cap on borrowing after a constitutional court ruling last month tore up the government’s spending plans.

The budget was approved with 392 votes in favour and 274 against in parliament’s lower house. After that, the upper house also passed the law on the supplementary budget with no objections.

The decision on the debt brake suspension required an absolute majority in the Bundestag, with more than half of the members voting in favour. There were 414 votes in favour, 242 against it, and nine abstentions.

The government justified the suspension of the constitutionally enshrined debt brake, which limits net debt borrowing to 0.35% of GDP, by saying the war in Ukraine constituted an emergency situation.

In the past few weeks, the government has scrambled to find a way to accommodate the court ruling that blocked the transfer of unused funds from the pandemic to green investment, blowing a 60-billion-euro ($65.76-billion) hole in its finances.

With its the supplementary budget, the federal government exceeds the borrowing permitted under the debt brake by 44.8 billion euros ($49 billion), with planned new borrowing of 70.6 billion euros.

Of this figure, 43.2 billion euros is earmarked for energy price subsidies for gas, district heating and electricity. About 1.6 billion euros will go to a relief fund created for floods in the Ahr valley in 2021.

THE 2024 BUDGET

One week after the court ruling, the government agreed on this year’s supplementary budget, but it took almost a month to clinch a last-minute deal on its 2024 budget.

Wednesday’s agreement will reinstate Germany’s self-imposed limits on new debt despite warnings this could hamper growth in Europe’s top economy and slow its green transition.

After the court ruling, Chancellor Olaf Scholz’s three-party coalition needed to either suspend the debt brake for the fifth consecutive year or find some 17 billion euros in savings and tax hikes.

Just two days after the 2024 budget deal, the government has already passed in both houses of parliament some resolutions that will take effect next year.

One such measure German lawmakers approved on Friday is a higher carbon dioxide surcharge that will increase fuel and heating costs, as part of the revised 2024 budget.

The surcharge increase, part of a range of measures agreed to plug the budget hole, was passed with the majority of the three coalition parties.

The CO2 price will rise to 45 euros a metric ton on Jan. 1 from 30 euros now. That is likely to boost the price of petrol by about 4.5 cents a litre.

The Bundestag also approved a cut in the electricity tax for industry, which will fall to the European minimum rate of 50 cents per megawatt hour in 2024 and 2025, translating into an expected annual relief of around 3.25 billion euros.

Lawmakers also approved limiting parental allowance to couples with a taxable income of up to 175,000 euros. For single parents, the limit is 150,000 euros.

($1=0.9124 euros)

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