How do you draw up a federal budget for 2022 if you don’t know how 2021 will go – let alone the year after? And also cannot know who will rule the republic in a year’s time? Federal Finance Minister Olaf Scholz (SPD) is currently facing a difficult task.
Because he is not just the minister who is responsible for this budget and who has to get the cabinet, including the Union colleagues, behind him for his proposal. Scholz is also a candidate for Chancellor of the SPD and wants to lead the next government, which then – that must be the concern of the Social Democrats – sets slightly different accents than the current black-red coalition. Scholz has to draft a budget that, so to speak, has to fit two governments – the current one and a future one under his leadership. So a budgetary conflict of objectives?
Scholz and Braun test the mood
But he’s not alone there. The Union side in the government is also thinking. This has only just been shown by the move by Chancellery Minister Helge Braun (CDU) on the debt rule in the Basic Law. Braun didn’t just want to loosen the brakes, they also wanted to convert them into a pedal for moderate acceleration. He should not only have asked his boss beforehand. But the Union faction has spoiled the fun for now.
The coalition is now all the more concerned with the question of how to draw up the budget for 2022. How are income and expenses balanced? With significantly more debt and another suspension of the debt rule due to an emergency? Or again according to the usual rules, like before the pandemic?
The benchmarks must be in place in March
Either way, time is of the essence. Because every year in March, the Ministry of Finance has to present the key figures for the budget for the following year. Talks between the state secretaries of the federal ministries are ongoing. Part of the ritual is to ask for more than can then be fulfilled. According to reports, a lot is being asked at the moment.
It is then the business of a finance minister, in conjunction with the government headquarters, the chancellery, to present a balanced budget until the key figures are agreed in the cabinet – currently 17 March is planned for this. In early summer, at the end of June or beginning of July, the government draft follows, i.e. the bill that is then introduced to the Bundestag. He decides on the budget in December at the latest.
It is different in the election year
In election years, however, when a new Bundestag is elected in the fall, things are a little different. Then the electoral term ends in the middle of the budget process. The cabinet draft is in a drawer until a new Bundestag deals with it. Seen in this way, the key figures that Scholz will present in mid-March are only the beginning of a procedure that will end sometime in the first few months of 2022.
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What the economic and thus also budgetary situation will be is currently far less clear than in normal times. As a rule, planning at least the income is a very simple matter. You have the dates of the tax estimates, and if the economy does not experience any major dips or bursts, March, and especially July, can reasonably be predicted where the next year will go.
In 2020, plan and reality were apart
But that’s not the case in the second Corona year. The previous year already showed that in an unpredictable crisis situation, the budget and the budget balance can be small worlds. Due to tax shortfalls and corporate aid, a total budget of 508 billion euros was drawn up by means of two supplementary budgets. Of this, 218 billion were financed through new loans, which were possible thanks to the emergency clause and the cyclical component of the debt brake (it applies when the economic situation is poor). In the end, the expenditure was 443 billion euros, new debts had to be taken on 130 billion euros.
For 2021, the government has had the Bundestag approve spending of 499 billion euros, of which 181 billion are loan-financed – also through a combination of business cycle and emergency clause. Whether there is again a large cautionary buffer in it, whether one can just manage it in the end, whether a supplementary budget is still required – initially unclear.
New loans of 60 billion euros?
And what it will be like in 2022 is even more written in the stars. But Scholz has to set up benchmarks and these have to represent a balanced budget. A sum of 60 billion euros in new debts is reported, which the finance minister is earmarking for this purpose. But it can also be more.
In the past few days, Scholz has repeatedly pointed out the large gap that is opening up compared to the original financial planning from pre-Corona times. Due to the economic slump, tax estimates had to be revised downwards drastically last year, much more so than after the financial crisis. This means that the “tax path” will be between 32 billion euros (2022) and 26 billion euros (2024) lower than the estimates made at the end of 2019. And there will be more expenses due to the corona, estimated to be around 20 billion euros more in 2022 than in the old plans.
Reach into the back
In addition, since 2018 the coalition has decided on more future-oriented expenditures than the tax revenue itself could cover under the old plan. The gradual dissolution of the reserve invested in the surplus years therefore had to be included in the financial planning. In the meantime, a sum of almost 50 billion euros has accumulated – in the form of credit authorizations, which the government can activate at any time and which are not subject to the debt brake (because the surplus money was actually used every year to repay debt). The old financial plan planned to use around 28 billion euros from these reserve loans in 2022, and around 13 billion euros in 2023.
On the other hand, this means that there is actually enough money to finance the 2022 budget even without using the emergency clause of the debt brake. The general clause alone (the federal government is always allowed to take out new loans amounting to 0.35 percent of gross domestic product) and the cyclical component of the debt rule would, according to the current status, allow new loans of almost 24 billion euros for 2022.
Hooks and complex rules
But there is a catch: according to the rather complex rules of the debt brake, outflows from special federal funds must be deducted. So far, the Ministry of Finance has apparently assumed that a good 13 billion in such outflows will come together in 2022 – i.e. the energy and climate fund, the two municipal investment programs, the digital pact for schools and a few others. So you end up with the permissible cyclical new debt of a good ten billion euros, which are sometimes mentioned.
However, these special funds have so far had the problem that the money does not flow out – or at least at a much slower pace than desired. The question is why things should suddenly change in 2022. Scholz and the coalition as a whole are in a quandary here: If they were to plan fewer outflows, they could easily take out more new loans. But then they would have to officially admit, so to speak, that their investment programs are not running.
Relief now means late stress
But even if you calculate with just over ten billion in new debt due to the economic situation – if you add the entire volume of the reserve, the € 60 billion, which is apparently necessary to cover the budget, would be combined without an emergency clause. The problem would then be balancing the budget in the following years after 2022, because part of the surplus reserve is earmarked for this. But the sums involved are far smaller.
In addition, balancing the 2022 budget across the entire reserve could also be worth considering with a view to the future. If the coalition actually again made extensive use of new loans for 2022, it would have to decide on relatively high repayment obligations. Because according to the rules of the debt brake, every euro of debt that is taken on via the emergency clause must actually be repaid at some point. This is to prevent the exploitation of emergencies.
It’s not about “peanuts”. The annual repayment installment of the new emergency debt planned for 2021 has so far been ten billion euros. With additional new loans in 2022, it would be significantly more. But the obligation to repay will only start later – the year 2026 is planned. So it will only hit the next but one government.
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