Budget freeze: What it’s really about – a guide

In these Berlin traffic light chaos days, a text about the federal budget is best started with something concrete from the rest of the republic, with the Promenadenring in Dresden, for example. It is one of the most important construction projects in the Saxon capital. The idea: A wide boulevard should run as a green band around the old town. Big trees, lots of shade. Good for the climate, even better for climate adaptation. A place that invites you to take a walk and linger – when it’s finished.

The money has been missing since last week. Since the Constitutional Court declared the federal government’s supplementary budget for 2021 null and void, people in Dresden don’t know whether and how they can still pay for their promenade. The federal government should ultimately cover part of the costs, financed from the Climate and Transformation Fund, or KTF for short. This is the fund into which the traffic light transferred 60 billion euros at the beginning of its term in office that were originally earmarked for Corona aid. An inadmissible budget trick, as the constitutional judges have decided.

When the verdict came, Finance Minister Christian Lindner immediately blocked large parts of the KTF. Now his State Secretary Werner Gatzer has gone even further with two letters to all federal ministries and blocked parts of the 2023 budget. There are now many promenade rings in the country’s planning books.

But what follows from this approach, which is unique in the history of the Federal Republic? And what does that actually mean: budget freeze?

There are three important questions that need to be distinguished

In order not to lose track this week, you have to sort through the possible consequences of the verdict. Firstly, there is the really big question: How can the climate-friendly restructuring of industry be financed in the future? Not only the traffic lights, but also the Union needs an answer that does justice to reality. But they don’t need them right away.

Secondly, there is the question of the week: What does the decision of the constitutional judges mean for the 2024 budget, which the Bundestag is actually supposed to decide on this week? And thirdly, there is the most complex among the already complicated questions: What about the current budget for 2023?

Questions two and three are closely related. Not only because they drive the divided traffic light coalition to the brink of its ability to govern, but also in a very practical and simple way: because every budget predetermines the next year’s. And so to the first letter from Lindner’s State Secretary Werner Gatzer to the ministries. He came Monday evening. What does it say and what does it mean?

An otherwise forbidden comparison

“In order to avoid further prior burdens for future financial years, I intend to block commitment appropriations that have been issued and are still available with immediate effect,” the letter states. And the key word here is: commitment authorizations. Anyone who doesn’t deal with public budgets on a daily basis probably has little idea about it. If you break this cumbersome word down into its individual parts, it quickly becomes clear what it is about.

All you need to know is that the principle of annuality generally applies to households. This means: Whatever the state decides for one year, it has to spend that year. Multi-year projects would therefore be impossible. That is why there are commitment authorizations. Parliament, which has sovereignty over the budget, thereby authorizes the administration to make commitments that will lead to expenditure in the coming years.

If the commitment appropriations are now blocked for almost the entire 2023 budget, this means that current expenditure is not affected. Whatever was decided for this year will be spent as planned – if it is not already done so shortly before the turn of the year. With the ban, the government is questioning what it wants and can spend in the future. Precisely because, according to the Constitutional Court’s ruling, she is missing a lot of money that was firmly budgeted for.

To make it even clearer, given the situation you can, for once, do something that is otherwise forbidden: compare private budgeting with public finances. One can imagine the current process, roughly simplified as follows: Shortly before Christmas, a family loses a considerable part of its income because the mother’s employer goes bankrupt. This family will still be able to go shopping and maybe even put presents under the tree. But she is guaranteed to cancel the next summer vacation that has already been booked but not yet paid for.

Not constitutional again?

In this sense, the blocking of the commitment authorizations fits in well with the only announcement that the SPD, Greens and FDP can currently agree on: We are checking! Only those who carefully look at today’s obligations can create new scope for tomorrow – especially for the 2024 budget, which the traffic light wants to pass as quickly as possible.

The ruling results in “the need to review the overall budgetary situation,” writes Budget State Secretary Gatzer, who served four finance ministers from three different parties in his civil service career and had actually seen it all. Actually.

Because blocking the commitment appropriations clearly does not solve the problem that arises from the judgment for current expenditure this year. We remember the third question in the list above: Is the 2023 budget really constitutional?

You have to know that what the constitutional judges have decided also relates to the principle of annuality. And it affects loans that were taken out in emergency situations when the debt brake was suspended. According to the judges’ ruling, a federal government may only use these loans in the year for which it has declared an emergency. In addition to the KTF, this could also have consequences for him Economic Stabilization Fund (WSF) – and thus for the current budget.

Decision probably in the coalition committee

The WSF was originally intended to support companies in the wake of the corona pandemic, but was expanded after the outbreak of the Ukrainian war to cushion the energy crisis. To this end, the government provided the 2022 fund with credit authorizations amounting to 200 billion euros. That was the so-called “double oomph”.

At that time, the federal government declared an emergency and the debt brake was suspended. A lot of money flowed from the WSF this year, including more than 30 billion euros to reduce energy and electricity prices. Accordingly, if one follows the logic of the constitutional judges, the loans used for this would have to be counted towards the debt brake this year – which would result in the 2023 budget taking on significantly more debt than permitted.

On Tuesday, another Gatzer letter was sent to all ministries, which was first reported by the “Handelsblatt”. The government is now also blocking the WSF for 2023. However, this does not affect the payment of the energy price brakes. In the evening it was announced that the WSF would be closed completely at the end of the year.

Given this initial situation, the SPD, Greens and FDP do not have many options. Yes, for everything that comes, they have to check and check and check properly. But for everything that has just happened and is still going on, there is probably only one solution: the traffic light will probably have to declare an emergency again this year. A coalition committee could make a decision on this. Meeting? So far unknown.

What is known, however, is that economists will present their analysis of the ruling to the householders in the Bundestag on Tuesday. That these householders meet again on Thursday to discuss and possibly decide on the budget for the coming year. And it is also known that the CDU and CSU already doubt that a budget emergency declared so late in the year would be constitutionally clean.

So the Berlin days of chaos continue. And the people of Dresden have to be patient to see what happens to their promenade.