As Germany’s cabinet prepares to approve the country’s key budget figures for 2017 on Wednesday, one question has been on the lips of many observers: Will Europe’s largest economy be able to balance the books once again?
The answer, according to the country's finance minister, Wolfgang Schäuble, is yes. "The federal government is presenting a budget without new borrowing for the third time in a row," he told cabinet colleagues at the beginning of the budget approval process. And despite the costly refugee crises, the situation has not changed.
In fact, Mr. Schäuble intends to increase spending by billions of euros between 2017 and 2020, relying on earnings from Germany’s continuing growth to ensure the books are still balanced.
Under Mr. Schäuble's plan, spending in 2017 will increase by about €10 billion over this year's budget, to €325.5 billion. This includes a €5.64 billion “solidarity pact” to ease the financial burden on lower-income workers. It was negotiated last weekend by Sigmar Gabriel, Germany’s vice chancellor and head of the center-left Social Democratic Party, the junior partner in the country’s ruling coalition.
Mr. Schäuble has exhorted the ministries to exercise a "high degree of budgetary discipline."
Mr. Schäuble’s Christian Democrats have recorded a lower figure for the pact in the budget, however, as the finance minister had already included a portion of the solidarity pact in his January plan to cover rising refugee expenditures. Compared to the January plan, the pact will only increase spending by about €2.35 billion.
The fact that the 2017 budget does not slide into the red despite higher expenditures is a result of the ongoing strong economy. Mr. Schäuble has "adjusted" the expected tax revenues since November, according to the 106-page document. They will increase by €11.3 billion compared to 2016.
Following Mr. Gabriel's intervention, more money was added to the budget for language courses, daycare, employment programs, benefit reforms and low-income housing construction. "Once again, it is the SPD that is promoting important projects to strengthen our country within the coalition," said SPD budget expert Johannes Kahrs.
CDU budget expert Eckhardt Rehberg said he "welcomes the additional funds for domestic security, the military and development assistance," funds that were also used to cope with the refugee crisis.
In total, expenditures will increase next year by 6.8 percent for labor and social issues, to €138.67 billion, and by 8 percent for digital infrastructure spending, to €26.5 billion. The defense budget is increasing by 6.8 percent, to €36.6 billion.
"To achieve more economic growth in Germany, it is good that future investments in education and research, the transportation infrastructure and broadband expansion are increasing," said Mr. Rehberg, citing additional budget items linked to growth.
Following the cabinet decision on key budget figures, ministries will have until July 6 to formulate detailed spending plans. Mr. Schäuble has exhorted the ministries to exercise a "high degree of budgetary discipline."
To avoid new debt in 2018, he has proposed a so-called global spending reduction of €6.7 billion. The amount corresponds to the reserve established to pay for the refugee crisis and included in the 2017 budget-balancing procedure.
This reserve draws on the budget surpluses from 2015, totaling €13 billion, for the years 2016 and 2017. In his plan, Mr. Schäuble ignored requests by the German states for additional funds to cope with the refugee crisis.
Donata Riedel covers economic policy for Handelsblatt. To contact the author: [email protected]