Budget Crisis: A Breakdown of the Federal Government's Plan
After a week of negotiations, the coalition leaders unveiled a list of budget cuts last Tuesday. The federal cabinet is scheduled to approve this plan on Wednesday, but the compromises remain controversial, leaving room for potential alterations in Parliament before the end of January. The Bundestag resolution on the 2024 budget is set for the closing stages.
Following the Karlsruhe budget ruling, savings of around 17 billion euros in the core budget were necessary. Revisions were also required for the Climate and Transformation Fund (KTF), with billions being invested in modernizing the economy. Consequently, a funding gap of almost 30 billion euros emerged, according to government spokesperson Steffen Hebestreit.
Potential solutions for closing this gap include:
- Elimination of climate-harmful subsidies
- Reduction of ministry expenditure
- Better refugee labor market integration
- Reduction of federal subsidies
The following are the most vital decisions:
Subsidies' Elimination
- Farmers will no longer enjoy tax breaks for using vehicles in agriculture and forestry; motor vehicle tax will be payable instead. This change is expected to generate additional revenue of 480 million euros. Additionally, the abolition of agricultural diesel tax breaks will generate an additional 440 million euros.
- Air travel tax will be hiked, along with the abolition of a reduction mechanism, to produce a potential revenue of 650 million euros next year.
- Manufacturers will be responsible for paying the plastic levy previously covered by the German government. The change is projected to rake in additional revenue of 1.4 billion euros.
Ministry Savings
- A 800 million euro cut will affect the Foreign Office, Ministry of Economic Affairs, and Ministry of Development's budgets. The Ministry of Transport will contribute 380 million euros, while the Ministry of Education will contribute 200 million euros.
- The pension insurance system will receive 600 million euros less from the federal government while still guaranteeing a pension level of 48% until 2039.
- The Federal Employment Agency will return 1.5 billion euros to the federal government, which was initially provided as a subsidy during the corona crisis.
Rebooking of Weapons Purchases
- The Bundeswehr will not finance weapons purchases from the federal budget for Ukraine but instead from a special pot aimed at upgrading the Bundeswehr. This move will save 520 million euros.
Improving Refugee Integration into the Labor Market
- Bonus payments for further training will be eliminated from the Citizen's Income, along with sanctions for total refusers. This change will save 250 million euros.
- Expectations are higher in the integration of refugees into the labor market, which could save around 500 million euros through more frequent contact and sanctions for rule breaches.
Cuts in the Climate and Transformation Fund
- The special fund for climate protection investment program expenditure will be reduced by 12.7 billion euros.
- The CO2 price on heating oil, gas, and fuel will rise from 40 to 45 euros per tonne of CO2 at the turn of the year.
- Up to 20 billion euros will be invested in the railways' equity to enable urgent necessary investments despite the KTF cuts.
- 350 million euros will be cut from the regionalization funds distributed to the federal states to finance rail transport.
Updating of Forecasts and the Debt Brake
Simply by adopting more realistic forecasts, the federal government expects to save several billion euros in the 2024 budget. The federal government aims to dip about 3.2 billion euros deeper into a reserve accumulated during the refugee crisis.
However, these measures do not fully bridge the billion-euro gap. The federal government is considering suspending the debt brake in 2024. This proposition entails 2.7 billion euros in flood aid for Ahr valley disaster victims, but legal examination is necessary beforehand to confirm an emergency situation as per the Basic Law. The traffic light coalition has plans to discuss the matter with the CDU/CSU, either seeking support or legal action.
Suspension of the debt brake is potentially relevant later in the year if considerably more funding is required to support Ukraine, which is as yet not foreseen.
