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Armaments instead of parental allowance: Economist Lars Feld supports the debt brake and advocates freezing social benefits. Politicians “must tackle social spending”.
Freiburg – In the current discussion about the Debt brake, whose reform is called for by numerous experts The economist Lars Feld speaks out and calls for the traffic light coalition to set clear priorities in budget policy. Instead of questioning the debt brake, Feld suggests rethinking spending policy – especially with regard to social benefits. Experts complain that such shifts are merely “emergency operations” and do not cover the investment needs by far.
Weapons instead of parental allowance – economist Lars Feld is an advocate of the debt brake and calls for social transfers to be frozen instead of investments: “Politicians must tackle social spending.” © Carsten Koall/dpa
Criticism of the debt brake under fire: Economist calls for moratorium on social benefits
In an interview published on Saturday (17 August) with the Business Week he stresses that the debt brake has made a decisive contribution to the stability of German public finances. Particularly in view of demographic developments, the measure is of central importance in order to ensure the sustainability of the budget in the long term: “Before the debt brake was installed, the interest rate level was above the growth rate for a long period of time – poison for a sustainable budget policy.” The debt brake has defused this dynamic and contributed to growth being above interest rates for a long period, explains Feld.
Cuts in social spending: Discussion about debt brake – “Freeze social transfers for a few years”
Instead of – as the Council of Economic Experts, among others, have suggested – a reform to make investments possible, politicians should redistribute spending.
Feld proposes a moratorium on new social benefits: “We should freeze social transfers for a few years,” says the expert from the Albert Ludwig University in Freiburg. “Parenting allowance in particular could be questioned more radically than before.” The subsidies to the statutory pension insurance should also “at least slow down the momentum.”
Cuts in social spending: weapons instead of parental allowance – expert demands: “Politicians must tackle social spending”
Need the Bundeswehr more billions, should cuts in pensions and social benefits If this happens, then “politicians have to tackle the social spending that dominates the budget,” said Feld. Germany does not have a revenue problem, but rather a problem of political prioritization when it comes to spending over 480 billion euros.
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“Emergency operations”: Experts criticise insufficient scope for investment
The International Monetary Fund and the economic experts had called for more leeway to allow for new debt. Instead of the capped 0.35 percent, the federal government could take out up to 1 percent of GDP in new loans annually – “for future-oriented investments that will also benefit the next generation,” said Council member Martin Werding in an interview with merkur.de von IPPEN.MEDIA.
However, after the “financial policy collision” – the confiscation of the traffic light coalition’s budget by the Federal Constitutional Court – and its subsequent impact, the billion-dollar hole in the federal budget, there is no discernible political majority for this.
The moratorium called for by Feld to freeze existing social benefits for a few years would, however, “happen automatically, since the increase in citizens’ benefits anticipated an excessive inflation compensation,” explains the economist from the Ruhr University Bochum.
Anyone who believes that the required investments can be achieved through a reallocation alone is turning a blind eye to the political reality in the country.
The financial relationship between the federal government and the statutory pension insurance system must also be questioned. Only a precise allocation of federal funds to individual non-insurance benefits will open up scope for targeted savings. However, this is a “mammoth project”, says Werding, which cannot be carried out in one legislative period. All in all, these are “emergency operations” that are not sufficient to cover the investment requirements of many billions. The parental allowance budget of 9 billion does not open up “a huge scope”.
Re-allocation of expenditure as a solution: “Argumentation fails to recognize the magnitude of the problems”
Sebastian Dullien, head of the Institute for Macroeconomics and Business Cycle Research (IMK), also explains to merkur.de von IPPEN.MEDIA: “The argument fails to recognize the magnitude of the problems.” Even without support for Ukraine, there is a need for 60 billion euros a year for transport and education. The revenue that would come from “sociopolitically questionable increases in value added tax, including on discounted products such as food,” is a drop in the ocean.
Economist criticizes: “Federal budget lacks scope for defense and external security”
“Anyone who believes that the required investments can be achieved through a reallocation alone is turning a blind eye to the political reality in the country,” said Dullien. Not only infrastructure and education, but also defense urgently need the billions required, and we cannot wait any longer: “The federal budget lacks the urgently needed flexibility in view of the needs for defense and external security. We cannot wait until Putin has defeated Ukraine and attacks Europe.”
