"Should the Debt Brake undergo an overhaul for a greener Germany?"
IW Chairman Michael Hüther calls for a revamp of the debt brake to fund the restructuring of our economy. "Without these transformative investments," he states in an ntv.de interview, "we'll never achieve climate neutrality on time." Corporate taxes, currently quite high internationally, can't be decreased with the debt brake in its current form, according to Hüther. He criticizes the CDU/CSU and FDP for their reluctance to engage in this conversation.
What may the consequences be following the budget freeze?
Michael Hüther: The budget freeze has contributed to a surge in uncertainty regarding budget guidelines. The German government now requires creating a constitutionally compliant budget for 2024 as quickly as possible. The economic paralysis due to this uncertainty might be underestimated.
The debt brake has been in the spotlight ever since the Federal Constitutional Court's ruling on the climate and transformation fund. Is it time to abolish it or preserve it?
I won't trade blows on this issue, clarifies Hüther. He advocates for a reformation, not an annihilation, of the debt brake. The current debate emphasizes the debate's polarization. Any criticism of the debt brake is viewed as an attack on its very idea, he notes.
Why isn't it justifiable in its current form?
Limiting new borrowing to 0.35% of GDP is no longer appropriate, Hüther believes. Its theoretical and empirical justifications are lacking. Additionally, it must coincide with another constitutional court ruling on climate protection.
How does this ruling engage politicians?
The 2021 Federal Constitutional Court ruling forced politicians to commit to making Germany climate-neutral by 2045. This monumental task requires substantial investments, even when considering the EU's own 2050 target.
Why is now the appropriate time for reform?
Transformative investments will primarily benefit future generations. It's therefore righteous for future generations to partake in financing this transition, a position held by the German Council of Economic Experts in a 2007 report.
But, isn't this a leap?
Other fiscal rules ought to be considered, Hüther suggests. Switzerland maintains an expenditure rule, while Germany has a deficit rule. Adopting an investment clause in the Basic Law might also prove beneficial.
Intentions aside, some oppose this idea, believing it's an opportunity to loosen the fiscal leash in social policy.
Hüther vehemently opposes this notion. Budget constraints should never flinch on social policy or other consumer spending.
Shouldn't climate change be tackled by increasing the CO2 price?
Relying solely on increased CO2 pricing to achieve climate neutrality is unrealistic, Hüther thinks. Necessary investments in green technologies and infrastructure must be made without delay.
Could major tax reform be achieved with the existing debt brake?
No, according to Hüther. Irrespective of climate change, Germany's corporate tax rates are too high and demand a reconsideration. Reducing these taxes would be difficult under the present debt brake, however.
Is a robust German economy that outpaces its EU counterparts an argument against abandoning the debt brake?
Hüther dismisses this argument as unconvincing. Germany's current economic stagnation does not offer a robust EU boost. Germany could inspire EU growth through a smart investment and transformation policy instead.
Currently, Germany spends almost 30 billion euros on interest annually. Isn't this excessive?
Hüther emphasizes that focus should be on the debt brake's sustainability, not its sheer volume. While the debt ratio may seem high, Germany is still in a fairly favorable position.
The debt brake's debate intertwines grapples with climate policy and budget policy matters, imparting substantial ramifications for the forthcoming coalition partner interviews. This conversation will likely shroud the incoming negotiations, demanding constructive dialogue and innovative, sustainable financing solutions.
