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Wednesday, December 6, 2023

Partial budget freeze: Two federal budgets in danger

The Ministry of Finance has imposed a partial budget freeze. Experts recommend a supplementary budget and postponing the 2024 budget.

Robert Habeck in a solar field

Habeck in happier days: In March, the budget was not yet under acute threat Photo: Armin Weigel/dpa/picture alliance

Following the Federal Constitutional Court’s budget ruling, the Finance Ministry also blocked the Economic Stabilization Fund (WSF) on Tuesday afternoon. On Monday evening, numerous projects that were supposed to be financed from the climate fund had already been put on hold.

That this Judgment of the Federal Constitutional Court wIt was already clear to everyone involved last week that it would have serious consequences for the budget. The Budget Committee therefore scheduled a hearing with experts for this Tuesday to discuss how things can proceed after the verdict. The advice to the coalition of SPD, Greens and FDP was clear. Several experts recommended reviewing the current 2023 federal budget and not rushing into adopting the 2024 budget. Law professor Hanno Kube from the University of Heidelberg questioned the “constitutionality” of this year’s budget and called the figures for next year “not ready for decision”.

The SPD, Greens and FDP actually want to have the 2024 federal budget passed in the Bundestag next week. However, the entire process is in jeopardy because the Federal Constitutional Court canceled 60 billion euros last week in a ruling following a lawsuit by the opposition Union of the Federal Government. These were unused Corona national debts from 2021. The traffic light had planned the money for next year as expenditure in the climate and transformation fund, among other things. The highest court viewed this as a violation of the Debt brake in the Basic Law.

Many planned public investments are now at risk. For example, the money was intended to support solar module manufacturers in building new factories, to make it easier for steel producers to transition from coal to green hydrogen and to subsidize the establishment of chip manufacturing plants in Saxony-Anhalt and Saxony.

Financial and tax lawyer Kube explained at the hearing that the economic stabilization fund was also subject to the ruling. The decision to take out the loan came from 2022, but part of the funds were only taken out in 2023 and for the Energy price brakes been used. However, according to the Federal Constitutional Court ruling, both must take place in the same year. His conclusion: The traffic light coalition should decide on a supplementary budget for 2023.

Budgets 2023 and 2024 build on one another

Regarding the 2024 budget, Kube explained that there may be a few billion euros in additional expenses in the core budget that the government can no longer pay for from the climate fund. These changes would now have to be calculated and incorporated. Kube advocated a “cash collapse”. “The 2023 and 2024 budgets build on each other.”

Jan Keller from the Federal Audit Office, which controls state finances, argued in a similar direction. His institution considers “both the 2023 budget and the government draft for the 2024 budget to be extremely problematic from a constitutional point of view,” said Keller.

Not everyone at the hearing shared this opinion. Economics professor Jens Südekum from the University of Düsseldorf considered the “2024 core budget to be negotiated”. It could be passed now and possibly followed by a supplementary budget next year to enable additional spending.

Union deputy parliamentary group leader Mathias Middelberg saw his party, which had submitted the constitutional complaint, as confirmed. After the hearing, he emphasized that the billions of euros that were paid to private households and companies this year for energy price caps were actually not available. “They were not recorded correctly.” The conclusion of the CDU financial politician: A supplementary budget for 2023 is “absolutely” necessary. He also considered it advisable to “carefully” and “constitutionally design” the 2024 federal budget, which would probably lead to postponing the consultation.

Block on climate funds and federal budget

The hearing and subsequent answers to the question of where the missing money would come from were controversial. Meanwhile, Federal Finance Minister Christian Lindner (FDP) doesn’t just have one Budget freeze for the climate fund imposed, but also one for the 2023 federal budget, as far as funds for 2024 are concerned. This could already affect some investment projects that have not yet received a legally binding commitment – such as planned subsidies for solar and chip factories.

A partial way out of the financial misery would now be to declare another emergency for 2023, as the Basic Law allows in exceptional cases. Even CDU politician Middelberg suggested this. “That would break the debt brake,” he said, describing the consequences. On the one hand, this is an astonishing move, because the Union absolutely wants to comply with the brakes.

On the other hand, if Economic Stabilization Fund expenses were paid for with debt that was not permitted, there is little other solution than taking out additional loans. However, this would run counter to the policy of Finance Minister Christian Lindner (FDP), who absolutely wants to keep the brakes in place.

And 2024? There are two competing solutions for next year. SPD parliamentary group leader Mützenich spoke out in favor of suspending the debt brake: “In my view, we will not be able to avoid making an exception for 2024 – possibly longer.” Economics professor Dirk Meyer from the Bundeswehr University in Hamburg, however, explained this during the hearing , spending cuts, for example in basic child welfare, are unavoidable.

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