Bundestag: Budget impasse: Where the traffic lights could save money

No compromise lines are yet known: The traffic light is still looking for a solution to the billion-dollar hole in next year’s budget and for important investments in the modernization of the economy. It seems clear: savings have to be made. So it could hurt, including for the citizens. Exactly where is still unclear. Will there be a breakthrough and a political agreement on the 2024 federal budget at the beginning of the week?

Chancellor Olaf Scholz (SPD), Vice Chancellor Robert Habeck (Greens) and Finance Minister Christian Lindner (FDP) want to negotiate again in the Chancellery on Sunday evening. There is a gap of 17 billion euros in the core budget for 2024, but also 60 billion euros that were planned for in the climate and transformation fund by 2027. Following the ruling of the Federal Constitutional Court, they are no longer available.

According to Habeck, the traffic light leaders are “progressing step by step” and trying to compensate for the lack of funds. This would only be possible if unreasonable demands were endured in other places. FDP parliamentary group leader Christian Dürr said on rbb24 Inforadio that there is no one solution, but that they are looking “very closely at the many thousands of budget titles”.

Subsidies, social issues: which areas could be affected

So save according to the “lawnmower principle?” The FDP wants cuts in the social budget. Lindner advocates that the money be used more effectively in the social sector. “We have to get more people into work who are now claiming citizen’s benefit.” The SPD in particular rejects cuts in the social budget. Scholz promised on Saturday at the SPD federal party conference: “In such a situation there will be no dismantling of the welfare state in Germany.” He is sticking to the increase in citizens’ money, which the FDP has questioned: “But I think you have to resist it,” said Scholz. Lindner also wants to save on international financial aid and review subsidies.

However, the coalition has made it clear that subsidies for the replacement of heating systems, which are paid for from the climate fund, are excluded from savings. However, it is uncertain, for example, how much of the promised billions in funding will be used to modernize the partly dilapidated rail network. But the planned general renovation of heavily used main routes depends on this. Transport Minister Volker Wissing (FDP) has already emphasized: The Frankfurt-Mannheim route will be renewed as planned starting next summer. The fund should also finance the expansion of electromobility and the charging infrastructure – will there now be cuts in government funding for e-cars?

The Greens have long been calling for a reduction in climate-damaging subsidies and have mentioned, for example, tax breaks for company cars. The abolition of the so-called diesel privilege could also be on the table. So far, diesel has been taxed lower than gasoline, and a reform could bring billions in additional revenue. The traffic light could also introduce a kerosene tax for flights within Germany and eliminate tax breaks for agricultural and forestry companies, the so-called agricultural diesel – but that would probably result in protests from farmers.

Lindner has already expressed skepticism about the reduction in subsidies. It is not uncommon for people to talk about supposed privileges only to end up putting a burden on the working population, he told “Wirtschaftswoche”. A reduction in supposedly environmentally harmful subsidies could also affect the wrong area, for example social housing. Because of the sealing of the area, its promotion is considered to be harmful to the environment.

More revenue through the CO2 price or debt brake?

In order to increase revenue, the traffic light could also increase the CO2 price for refueling and heating with fossil fuels – although it is then questionable how additional burdens can be socially cushioned.

It is controversial whether the traffic light coalition should suspend the debt brake again next year and thus be able to approve billions in loans. Many people in the SPD and the Greens want that. The SPD party conference indirectly decided on such a demand on Saturday – albeit with some room for interpretation in the wording. But Scholz will now take the vote with him into further negotiations.

In order to suspend the debt brake, an emergency situation would have to be declared, for example due to the war in Ukraine. However, Lindner is not yet convinced of this, also because he fears that the federal government will end up in court again. A lawsuit by the Union would be very likely.

Higher electricity prices possible

Private households and companies could face higher electricity prices. The coalition has actually planned a subsidy for transmission network fees of up to 5.5 billion euros for the coming year. The money was supposed to come from the economic stabilization fund, which will be dissolved as a result of the Karlsruhe ruling. Now the subsidy would have to come from the core budget, which is already under pressure.

In addition, a billion-dollar package to relieve industry and medium-sized businesses could again be in question in view of the high electricity prices. Among other things, the electricity tax for all manufacturing companies is to be reduced to the minimum value permitted in the EU.

What economists and associations say

The director of the German Economic Institute, Michael Hüther, spoke out in favor of a special fund for the reliable financing of “transformative infrastructure investments”, similar to that of the Bundeswehr. Ampel and Union had specifically secured the billions in loans for the Bundeswehr in the Basic Law after the start of the Ukraine war.

Hüther said that the 2024 budget could also increase efficiency and effectiveness in social policy. “There is also scope for subsidies. At the same time, we would have to reduce the tax burden on companies in order to be competitive. This simply cannot be done with the debt brake.”

Marcel Fratzscher, president of the German Institute for Economic Research, said: “Declaring an emergency for 2024 and keeping all promises is by far the best way to avert even greater economic damage.” Economists Monika Schnitzer and Achim Truger also see suspending the debt brake again as a possible option.

Olaf Bandt, chairman of the environmental association BUND, is also in favor of suspending the debt brake. In addition, environmentally and climate-damaging subsidies such as the “company car and diesel privilege” and the energy tax exemption for kerosene would have to be abolished.