The federal government is scrambling to find ways to save some dough
After the coalition leaders had a little sit-down to discuss the budget crisis, the higher-ups in the government presented a list of potential cuts. These proposed savings are set to be approved by the federal cabinet on the morrow, but there might still be some political hiccups before the planned Bundestag resolution on the budget for 2024, slated for the end of January.
Up to 17 billion euros needed to be saved following the Karlsruhe budget ruling, and the plan for the Climate and Transformation Fund (KTF) had to be revised due to a funding gap of almost 30 billion euros.
Fortunately, some clever ideas have been floated to tackle this financial conundrum. One of these proposals involves abolishing climate-damaging subsidies, trimming ministry expenditures, better integrating refugees into the labor market, and reducing federal subsidies. Here's a rundown of the main proposals:
-Goodbye to subsidies and tax breaks:
The motor vehicle tax for vehicles used in agriculture and forestry will become a reality, potentially adding 480 million euros to the pot. Additionally, the taxi breaks for agricultural diesel will dismiss themselves, generating another 440 million euros.
-Higher ticket tax for airliners:
You guessed it - an increase in the air traffic tax is coming our way. On top of that, a reduction mechanism we don't even need will be eliminated, hopefully adding up to 650 million euros next year.
-Manufacturers to pay plastic fines:
Previously, it was the German government that paid the plastic levy to the EU. But now, it's up to the manufacturers to foot the bill themselves, which could bring in an additional 1.4 billion euros.
-Less money for global connections:
A total of 800 million euros will be cut from the budgets of the Federal Foreign Office, the Ministry of Economic Affairs, and the Ministry of Development. The Ministry of Transport will contribute 380 million euros, while the Ministry of Education will join in with 200 million euros.
-Less federal aid for pensions:
The statutory pension insurance scheme will be 600 million euros lighter in the pocket, but a 48% pension level will still be guaranteed until 2039.
-Federal Employment Agency returns the favor:
The Federal Employment Agency will pay back 1.5 billion euros to the federal government, nickel and dimed by the agency as a subsidy during the corona crisis.
-Weapons being re-gifted:
Rather than financing weapons given to Ukraine from the federal budget, the Bundeswehr will now pay for them from the special pot for upgrading the Bundeswehr. This leads to 520 million euros being saved.
-Reducing handouts for the citizens' allowance:
Bonus payments for further training will be axed from the citizen's allowance, and tougher consequences will be imposed on those who refuse to participate. This should save 250 million euros.
-Job boost for refugees:
More effort will be made to integrate refugees into the labor market, with extra emphasis on duties and sanctions for those who fall short. This initiative is expected to save around 500 million euros.
-Curtailing the climate and transformation fund:
Program expenditures for the climate protection special fund will be reduced by 12.7 billion euros. By canceling subsidy programs for products that have already gained traction on the market, this goal can be achieved, says the government. While at it, the Ministry of Economic Affairs announced the end of the environmental bonus for electric cars. In addition, a 5.5 billion euro subsidy to reduce grid fees for the electricity grid was yanked away.
-Higher CO2 price for refueling and heating:
This should bring in additional cash for the Transformation Fund. The CO2 price on heating oil, gas, and fuel will climb from 40 to 45 euros per tonne of CO2 at the turn of the year.
-Equity increase for railroads:
The railroads will gain up to 20 billion euros in equity over the next few years, enabling them to finance urgently needed investments despite cuts to the Transformation Fund.
-Less for the federal states:
The federal government will slash 350 million euros from the regionalization funds that the federal states receive to finance rail transport.
The federal government is also saving a few billion euros in the new budget just because their forecasts are becoming more accurate. It's now assumed that interest expenditure will be 2.3 billion euros lower. In addition, the federal government plans to dip deeper into a reserve accumulated during the refugee crisis, removing around 3.2 billion euros from it. However, even with these savings, the shortfall of 1 billion euros is not covered.
To tackle the budget shortfall, the federal government is considering suspending the debt brake in 2024. This would free up an additional 2.7 billion euros for flood aid to victims in the Ahr valley. However, the federal government wants to make sure that any suspension decision is legally watertight beforehand, to avoid any legal challenges.
Sources:
Enrichment Data:
The German federal government is grappling with significant budget challenges, as it seeks to reconcile the need for savings in light of the Karlsruhe budget ruling and the revised Climate and Transformation Fund (KTF). The proposed measures include reducing the funding for international engagement, eliminating federal subsidies like those for agriculture, axing tax breaks, and increasing aviation taxes.
However, the details of these proposed cuts are not explicitly outlined in the provided sources. There is also ongoing debate and pressure on the Traffic Light coalition to change its fiscal policies to address the budget shortfall.
The potential impact of proposed measures on different population segments, such as low-income households and the elderly, is unclear from the information available. The sources do not provide details on how the budget shortfall might be impacting the government's ability to provide crucial services or support during times of crisis.
Additionally, the sources do not mention the CDU's proposal for large tax cuts or reforms, which could have an impact on the government's ability to balance the budget. It remains to be seen how the government's proposed measures and fiscal policies will evolve in response to the budget challenges they are currently facing.
