Europe's news in English

COPY LINK

BUDGET

Government spending, borrowing up in 2009

A draft 2009 budget passed late Thursday by a committee from Germany's lower house of parliament would allow Berlin to spend and borrow more than other budgets proposed by Chancellor Angela Merkel's Grand Coalition government.

Published: 21 November 2008 10:25 CET

Government spending, borrowing up in 2009

The last budget debate gave Steinbrück pains. Photo: DPA

The Bundestag’s budget committee wants to allow the government to borrow €18.5 billion next year as the German economy grinds to near-standstill and dole out €290 billion, 2.4 percent more than in 2008.

In his budget, Finance Minister Peer Steinbrück had kept borrowing at €10.5 billion while Merkel’s cabinet wanted to cap spending at about €288 billion. The various proposals agree that the government should invest about €27 billion next year.

The proposal was hammered out in a marathon session by members of the government’s coalition government and is expected to see little resistance when the lower house reviews the budget later this month.

Budget specialist Carsten Schneider, from the left-leaning Social Democrats (SPD), said the proposal was “appropriate” but admitted the budget must be balanced in the mid-term. “It would be wrong to save going into a crisis,” he said.

His counterpart in the conservative CDU agreed, though he admitted to mixed feelings. “It’s the right thing in a difficult environment,” he said.

The new budget comes after the government ratcheted down its estimate for tax income next year by €4.6 billion due to slowing global economies. The budget committee expects a tax haul of €244.1 billion in 2008, €4.6 billion less than earlier prognoses. Additional income has been pegged at €27.4 billion.

The biggest differences between the committee’s budget and other proposals arise in how the cash is divvied up. The Transportation Ministry would get an additional €1 billion next year while the Family Ministry would enjoy an additional €124 million than in 2008.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

Url copied to clipboard!