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Ministry of Finance: Report: German public finances not future-proof

Ministry of Finance: Report: German public finances not future-proof

Is Germany well prepared for an aging population? Not from a financial perspective, shows a report from the responsible ministry. There this is understood as a warning appeal.

According to experts, without political countermeasures, German public finances risk getting out of control in the long term. According to the current sustainability report from the Ministry of Finance, which is available to the German Press Agency, Germany is again financially less prepared for the aging of society. In the house of Minister Christian Lindner (FDP), this is seen as an appeal for far-reaching structural reforms.

The sustainability report is considered an early warning system for state finances. It shows the consequences that aging society has on government finances – other burdens such as climate change and possible future crises are left out. The report is prepared by the Ministry of Finance once per legislative period on the basis of an opinion from external scientists. The model calculations are purely hypothetical and assume that politics will not change.

The new report is due to be presented to the cabinet on March 20th. He assumes a significantly aging population. Today, around one in five people in Germany is older than 66, and by 2070 it could be almost one in three.

“Sustainability gap” identified

This presents the state with significant financial problems: Because fewer citizens are working, it collects less taxes. The same applies to social security contributions. At the same time, however, more citizens are receiving benefits, for example from pension and nursing care insurance. According to the report, demographic-dependent expenditure, for example for pensions, health, care and family, could rise from the current 27.3 percent of economic output to 30.8 percent in the best scenario – under unfavorable conditions they could even climb to 36.1 percent.

The “sustainability gap” determined for 2070 is 1.6 percent of economic output under favorable assumptions – 4.7 percent under a pessimistic scenario. Measured against the current gross domestic product, the state would have to spend between 66 and 194 billion euros less or earn more. The experts assume that Germany is aiming for the Maastricht debt ratio of 60 percent of GDP.

Lindner: Think about longer working lives

Unless the debt brake is adhered to, the debt ratio could rise to 345 percent of GDP by 2070 according to the projection in the worst scenario and to 140 percent in the favorable scenario. “Compliance with the debt rule would contribute to the long-term sustainability of public finances by reducing the debt ratio,” the report says.

The Ministry of Finance sees the projection as confirmation: sustainable development of public finances is only possible with structural changes. Placing the financing of the statutory pension on a third pillar, the capital market, as planned by the traffic light coalition, is only a first step. Lindner recently also advocated thinking about a longer working life. In addition, the demographic problem should be alleviated through the immigration of skilled workers.

Lindner is also focusing on better economic growth. He has announced an immediate program that is intended to initiate an “economic turnaround” and improve the location factors of the German economy.

Source: Stern

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