Because the federal government is missing billions, the old heating system has to continue to run

The Federal Ministry of Finance has extended the budget freeze imposed on the Climate and Transformation Fund (KTF) to cover almost the entire federal budget. The traffic light government wanted to spend money originally planned for the corona pandemic in 2021 on climate policy. The Union faction sued against this and was confirmed by the Federal Constitutional Court. After the decision, there may still be significantly more money missing than the 60 billion euros planned for climate protection. Also the heating law, which is so controversial this year, because no one knows where the subsidies will come from.

Ampel is faced with the ruins of her politics

The dispute in the traffic light coalition about what should be done with the judgment has escalated. Finance Minister Christian Lindner therefore initially ordered a budget freeze on Monday evening. Commitments made are still being paid, but all spending plans for the future have been stopped for now. The government is apparently counting its money to avoid impending bankruptcy. The consequences are unforeseeable, says former economist Bert Rürup. It is not yet clear how devastating the extent of the lack of money really is. After the 60 billion fund was declared unconstitutional, the same fate could threaten the economic stabilization fund. This keeps gas and electricity prices low, for example. Its volume: 200 billion euros.

Dispute over the future of the debt brake

The fronts in the dispute are as follows:

• Some want to save costs, for example in the huge social budget, which has recently received numerous new areas of activity, from increasing citizens’ allowances to unexpectedly high needs for immigrants.
• The others, and that is the majority of representatives from the SPD and the Greens, would like to “modify” the debt brake anchored in the constitution, i.e. to declare an unavoidable emergency. The path to further loans would then be clear.

However, it may not be enough to classify a ruling by the Federal Constitutional Court as triggering an emergency. In any case, the CDU/CSU opposition wants a supplementary budget for 2023, and of course the 2024 budget will have to look different than expected.

However, one thing is clear: everyone involved will have to drastically adjust their plans, and that will be at the expense of the citizens. This is about promoting heat pumps on a small scale and municipal heat planning on a larger scale. Federal Minister of Economics Robert Habeck just stated that everyone, private individuals and companies, will face explosively higher gas and electricity prices, with dramatic consequences: “It’s about the core substance of the German economy, which is under attack with the judgment and the loss of money. “Because the federal government is missing billions, the old heating system has to continue to run.

Is the economic stabilization fund also on the verge of collapse?

The Karlsruhe ruling also includes the Economic Stabilization Fund (WSF), which the Chancellor, with a touch of popular sentiment, announced as a “double whammy”, which is now possibly being transformed into a zero whammy by the Constitutional Court. Around 32 billion euros have already been distributed from this “special fund”, commonly known as debt. This also affects private homeowners who have relied on funding from the state-owned KfW Bank for their low-energy house. At the moment it is only clear that the funds already spent must be financed from another source. However, this is not possible if the 2023 debt brake is adhered to. And the Doppelwumms planned up to 200 billion euros in debt for the coming years. Similar to the Corona Fund, now the KTF, expenditure was planned over several years, and this is a key objection of the court: emergencies are characterized by the fact that they should be remedied immediately, and not as a reserve for future services from the state act.

Consumers ask themselves: What help can I still count on?

For new heat pump owners, the question now arises as to whether their conversion or installation is profitable, because future electricity costs can no longer be calculated. The federal government has found itself in an almost hopeless situation in which energy subsidies were the only way forward if it relies almost entirely on renewable energies and immediately or soon excludes other sources such as nuclear power and coal. If the subsidies are not affordable, there is hardly anything left. The fact that large companies could also be affected by this calamity, possibly even funding for companies such as Intel near Magdeburg or Infineon (Dresden), may not be a consolation.

But the ruling is also bad news for jobs, because energy-intensive companies have relied on bearable prices in Germany for the future. As things stand, the topic of setting up companies abroad will become more topical. The real estate industry will probably also take another hit, as many planned but not yet started construction projects are no longer profitable. For private house builders who are in the middle of a project or for existing properties, the only way out of the electricity cost trap is solar energy. Of course, this investment initially costs money, so it is not an alternative if financing is tight and funding commitments are not forthcoming. The currently discussed funding for wood heating systems and all other, sometimes complicated government subsidy projects are also unclear.

Communities are coming under even more pressure

In addition, the municipalities are also suffering because, in addition to declining trade tax revenues, they will also have to question their municipal heating planning in the future. The law has just been passed in the Bundestag that requires large cities to submit district heating plans by 2025 and smaller cities by 2027. Of course, some of the money for the expensive district heating networks should also come from subsidies. If these are questionable, or even do not occur at all, some highly indebted municipalities could be on the verge of bankruptcy and have to be placed under surveillance. Building owners planning for the long term are waiting to see whether district heating can be used in their community or whether they have to install heating themselves. All this against the background that a sandwich situation could arise in numerous sectors: on the one hand, higher energy prices, especially due to the no longer subsidized network fees, and on the other hand, a collapse in demand for all systems and trades that have to do with subsidized energy in the broadest sense have. In view of these complications, the increase in VAT in the catering industry, contrary to the Chancellor’s earlier promises, is now becoming almost a side issue – except for the restaurants, which are already on the verge of giving up, according to the industry association: there is a risk of a wave of bankruptcies.

Will taxes ultimately rise?

As things stand, the federal government is currently considering various ways of overcoming the impasse. Including tax increases. However, if such tax increases were to bring in the 260 billion euros that are missing in the long term, they would have to be huge. And probably include VAT – in Europe there are definitely countries with a VAT of up to 27 percent, 25 are no exception. The consequences for the location would be disastrous, which is why it is preferred to declare an emergency again in order to circumvent the debt brake. This could end up before the Federal Constitutional Court again – politicians are hoping to get information about the chances from an expert hearing and from the Federal Audit Office, which, however, is traditionally more inclined towards saving than creating money. What is of course like the proverbial elephant in the room and is deliberately overlooked: Simply stomping out and reversing the numerous measures as part of the energy transition is at least theoretically conceivable, as are cuts in the social budget, which has reached enormous proportions. However, the coalition would have to accept both, i.e. postponing climate protection measures indefinitely and restructuring social benefits, as an admission of complete failure.