German government tightens belt in new budget

The German government presented its 2024 budget to the parliament on Tuesday, with Finance Minister Christian Lindner, of the neoliberal Free Democratic Party (FDP), hoping to end several years of government spending to manage a series of crises: COVID-19, war in Ukraine, and a rise in energy costs.

"Today, the issue is a return to the debt brake — or, more precisely, to sustainable public finances in the long term," Lindner told the Bundestag.

Lindner's draft budget comprises €445 billion ($480 billion) next year, around €30 billion less than in 2023 but still around €90 billion more than in 2019, the last budget before the coronavirus pandemic. Nevertheless, almost all departments will have to make savings compared to this year.

The federal government suspended its constitutionally enshrined debt brake from 2020 to 2022, borrowing unprecedented amounts in various forms. Lindner has tied his tenure in the ministry so far on the promise of sticking to this limit. His 2024 draft budget includes €16.6 billion in new debt, €30 billion less than this year.

Defending his plans during a lively debate on Tuesday, Lindner pointed to the rapidly rising expenditure on servicing debt. Next year, he said, interest payments alone would cost the state €37 billion. "The interest costs in the budget are now twice as high as the budget of the education and research minister," he said. "We simply cannot afford new rampant debts. They simply would not be financeable."

Limited social reforms

The cuts are controversial in the federal government, whose coalition also includes Chancellor Olaf Scholz's center-left Social Democrats (SPD) and the Greens, both of whom favor more interventionist solutions to economic problems than Lindner's FDP.

Some social reforms have been achieved: The basic benefit for the unemployed, now named "Bürgergeld" (literally, "citizens' money"), will be raised by 12% at the start of next year — though that will do little more than match rapid inflation.

The Green Party has also managed to keep one of its own key election promises: Replacing Germany's child benefit system with a fixed "basic guarantee" for all children, to be introduced at the start of 2025. But Green Party Family Minister Lisa Paus was forced to accept a much lower budget for the plan: €2.4 billion rather than the €12 billion she asked for.

The conservative Christian Democratic Union (CDU), the biggest opposition party and erstwhile coalition partners of the FDP, poked its finger in the apparent gap between the coalition partners.
 
"After the speech, one had the impression that, maybe the FDP still has a plan for this country, because we saw their group clap occasionally, but in the other government parties, we didn't notice it," said Mathias Middelberg, deputy leader of the CDU parliamentary group.

"On all the important points you mentioned — monetary stability, debt brake, market-economic solutions for growth — we didn't see a single hand raised for applause among the SPD and the Greens. This isn't a draft budget of the government, this is a draft budget of the FDP," he said.

Lindner could not help but smile at the criticism.

A week of budget debates ahead

Other opposition parties in the Bundestag voiced their own discontent: The far-right Alternative for Germany (AfD) accused the government of hiding substantial new debts in "special funds," which, as Lindner pointed out, was a commonly used tool for Finance Ministries.
 
The socialist Left Party, meanwhile, took issue with the fact that one of the few departments not facing cuts would be defense. The defense budget is to be raised next year by €1.7 billion to €51.8 billion — though even that is much less than what Defense Minister Boris Pistorius was hoping for, as he faces new challenges upgrading the German military.
 
Meanwhile, the German government is deep into a row over plans to subsidize power costs energy-intensive industries. Lindner is planning to cut the current subsidy, much to the annoyance of many major German companies. 
 
These and other debates will now occupy the Bundestag for the rest of the week, as the parties pick apart the government's plans. 

Edited by: Rina Goldenberg

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