Finances: Budget verdict: What paths lead out of the billion dollar hole?

Finances: Budget verdict: What paths lead out of the billion dollar hole?

The Federal Constitutional Court’s budget ruling raises a mountain of questions. Economists and lawyers tried to find answers in a hearing.

After the Karlsruhe budget ruling, the federal government also sees far-reaching consequences for other reserves in the federal budget. The loans from the special fund for energy price caps “could no longer be used in 2023 according to the current legal situation,” Budget State Secretary Werner Gatzer informed the ministries. With the letter, which is available to the German Press Agency, he blocked all further expenditure from the economic stabilization fund for the current year.

At the same time, finance ministry circles said: “The payment of the energy price brakes in 2023 is not affected.” The funds required for this by the end of the year have already gone to the suppliers and are therefore not affected by the block.

Experts consulted by the Bundestag also said that the special fund for energy price brakes would probably be affected. Because this was fed with loans in 2022 during the energy emergency, which would not be used in the same year, but later.

It was precisely such an approach that the Federal Constitutional Court criticized, several experts argued in a hearing of the Budget Committee. This means that the federal government has already spent money in the current year that was not even available to it.

The Constitutional Court had declared the reallocation of 60 billion euros in the 2021 budget to be null and void. The money was approved as a Corona loan, but was subsequently intended to be used for climate protection and the modernization of the economy. Now it is no longer available. At the same time, the judges also decided that the state was not allowed to reserve emergency loans for later years. Instead, an emergency must be declared every year.

The Ministry of Finance is now checking which reserves in the federal budget are affected. Because we don’t yet know how to deal with the billion dollar hole, financial commitments from all ministries for the coming years have been blocked in the budget as a precautionary measure. What happens now with the budgets for this year and next year – and the long-term investments that economists still consider to be absolutely necessary?

Budget 2023 – justify loans retroactively?

The main problem this year is likely to be the Economic Stabilization Fund (WSF) with the energy price brakes. According to the Ministry of Economic Affairs, around 37 billion euros in loans were used from this pot this year by the end of October. In the opinion of most of the experts heard, this is money that the federal government should not have had at all. As we now know from the ruling, expenditure was made unconstitutionally, said legal scholar Hanno Kube, appointed by the Union.

It seems impossible to add this money to the regular budget now, so close to the end of the year. The traffic light coalition is therefore considering quickly declaring an emergency for 2023. Such a decision makes it possible to use an exception to the debt brake and subsequently justify the loans that have already been issued. According to Article 115 of the Basic Law, the state may incur debts “in the event of natural disasters or exceptional emergency situations that are beyond the state’s control and significantly affect the state’s financial situation.”

Whether such a situation exists is controversial. Economist Dirk Meyer from the University of the Bundeswehr, appointed by the AfD, sees little basis for this. The lawyer Alexander Thiele, whom the SPD invited to the Bundestag, was different: At the beginning of 2023, the effects of the energy crisis were very noticeable, he argued. Kube also believes that an emergency resolution “is not ruled out from the outset”. However, it would then have to be limited to the loans from the WSF used in 2023, as only here is there a direct connection to the energy crisis.

The danger with such a decision would be another and possibly successful lawsuit in Karlsruhe. The traffic light coalition could try to agree on details with the opposition so that they do not sue. But even if that were to work, any private individual could still take the matter to the Constitutional Court.

The economist and advisor to Finance Minister Christian Lindner (FDP), Lars Feld, argued in the “Rheinische Post”: “If the federal government had been aware of the Federal Constitutional Court’s ruling at the end of 2022 when the gas and electricity price caps were passed, it would have had the “We have to make an effort to address the emergency situation, specifically in relation to the energy crisis, and be able to justify it with that.”

Budget 2024 – decide now or not?

The budget committee actually wanted to approve the budget for the coming year this Thursday; it was supposed to be approved in the Bundestag on December 1st. Whether this is tenable is controversial. The economists advocated this in the committee, but several lawyers believe it is constitutionally difficult. Kube said that it has not yet been decided at all whether expenditure from the special funds should now be transferred to the core budget. “All in all, there needs to be another cash fall.”

However, legal scholar Henning Tappe, appointed by the Greens, believes a decision is possible. If the Bundestag decides against transferring projects from the climate protection fund to the budget for 2024, only editorial changes will be necessary, he said. Such a decision could be made if the Climate and Transformation Fund (KTF) had additional resources. The economist Jens Südekum argued that one could initially exclude the KTF, only decide on the core budget – and later, if necessary, make a supplementary budget.

SPD parliamentary group leader Rolf Mützenich also spoke out in favor of a resolution. The budget law is the “most important decision” of the year, he emphasized. Above all, consumers should be able to rely on benefiting from reduced VAT on gas and heat in January and February. In addition, social projects, voluntary services and the children and youth sector would be strengthened. “I want everyone to understand that we have a great responsibility not to make the uncertainty even greater,” Mützenich made clear.

Long-term investments – what works and what no longer works?

Experts’ opinions differ as to whether and how exactly the long-term management of crises will be made more difficult by the ruling. Lawyer Thiele sees problems here. Because then the Bundestag “with its changing majorities and changing challenges” would have to make new payment obligations every year for the coming years. In the year of a crisis, the Bundestag can only say to those affected by a flood disaster like the one in the Ahr Valley about the planned help: “We are determined to do this, we promise to put it into your hands.” But that is not legally binding. “Then the goal of quickly overcoming the crisis may be at risk.”

Economist Südekum explained that under these conditions, crises can only be dealt with in the short term and that the investments that are so necessary at that time can hardly be carried out. The consequences of an economic shock often continue to have an impact years later, when the cause has long since passed.

Legal scholar Kube saw it completely differently. “There are of course many ways to plan for the future and also to communicate with the public and the economy,” he emphasized and listed: funding programs, funding decisions, medium-term financial planning and commitment authorizations with which the federal government can do so for future years enters into payment obligations. But the Bundestag would then have to decide every year to cover these longer-term programs, with resolutions to declare an emergency as an exception to the debt brake or with borrowing.

Source: Stern

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