COPY LINK

POLITICS

Germany to significantly cut budget for digitalising services

The German government is to slash the budget for the mammoth task of digitalisation by more than €300 million to make savings, it has emerged.

Published: 4 August 2023 16:59 CEST

Germany isn't known for its digital access. Photo: Pixabay.

People who’ve spent any time in Germany will be well aware of the limitations of digital infrastructure, with public offices still heavily relying on paperwork and in-person appointments.

The German government had been trying to address this issue through the Online Access Act (OZG). The coalition, made up of the Social Democrats, Greens and Free Democrats, said it wanted to modernise systems and make life easier for residents by putting hundreds of government services online.

But it’s now emerged that only a fraction of money has been earmarked for this next year.

According to the budget plans, the Interior Ministry has earmarked €3.3 million for the digitalisation of administration and administrative services next year – compared to €377 million this year.

The budget cutdown was first reported on by German newspaper FAZ, while the Interior Ministry later confirmed the figures to broadcaster ARD.

According to FAZ, the cuts mainly affect administrative services that should have been digitalised by the end of 2022 under the Online Access Act.

Savings are also to be made in the budget for the “Digital Identities” project, which aims to provide German residents with legally secure identification online. It is considered the key to many state services as well as for banks or telecommunications providers.

A spokesperson for the Federal Digital Ministry said funding was still secure for central projects concerning the digital strategy.

The Ministry added that funds left over from previous budget years would also be used to advance digital infrastructure.

Germany lags behind many of its neighbours when it comes to how well countries are doing on digital skills and internet access. According to the EU’s Digital Economy and Society Index for 2022, Germany took the 13th spot just behind France in the ranking.

In general, the budget cuts are part of Germany’s aim to reign in cash after years of big spending, particularly during the Covid pandemic.

Overall, the government forecasts spending €445.7 billion in 2024, down from €476.3 billion planned for the current year.

A draft budget was presented earlier in summer and will be debated in parliament from September.

Member comments

Become a Member to leave a comment.

Output is expected to expand 0.3 percent this year, the economy ministry said, up from a prediction of 0.2 percent in February.

The slightly rosier picture comes after improvements in key indicators — from factory output to business activity — boosted hopes a recovery may be getting under way.

The German economy shrank slightly last year, hit by soaring inflation, a manufacturing slowdown and weakness in trading partners, and has acted as a major drag on the 20-nation eurozone.

But releasing its latest projections, the economy ministry said in a statement there were growing indications of a “turning point”.

“Signs of an economic upturn have increased significantly, especially in recent weeks,” Economy Minister Robert Habeck said at a press conference.

The ministry also cut its forecast for inflation this year to 2.4 percent, from a previous prediction of 2.8 percent, and sees the figure falling below two percent next year.

“The fall in inflation will lead to consumer demand — people have more money in their wallets again, and will spend this money,” said Habeck.

“So purchasing power is increasing, real wages are rising and this will contribute to a domestic economic recovery.”

Energy prices — which surged after Russia’s 2022 invasion of Ukraine — had also fallen and supply chain woes had eased, he added.

Several months ago there had been expectations of a strong rebound in 2024, with forecasts of growth above one percent, but these were dialled back at the start of the year as the economy continued to languish.

‘Germany has fallen behind’

But improving signs have fuelled hopes the lumbering economy — while not about to break into a sprint — may at least be getting back on its feet.

On Wednesday a closely-watched survey from the Ifo institute showed business sentiment rising for a third consecutive month in April, and more strongly than expected.

A key purchasing managers’ index survey this week showed that business activity in Germany had picked up.

And last week the central bank, the Bundesbank, forecast the economy would expand slightly in the first quarter, dodging a recession, after earlier predicting a contraction.

German Economics Minister Robert Habeck

Economics Minister Robert Habeck (Greens) presents the latest economic forecasts at a press conference in Berlin on Wednesday, April 24th. Photo: picture alliance/dpa | Michael Kappeler

Despite the economy’s improving prospects, growth of 0.3 percent is still slower than other developed economies and below past rates, and officials fret it is unlikely to pick up fast in the years ahead.

Habeck has repeatedly stressed solutions are needed for deep-rooted problems facing Germany, from an ageing population to labour shortages and a transition towards greener industries that is moving too slowly.

“Germany has fallen behind other countries in terms of competitiveness,” he said. “We still have a lot to do — we have to roll up our sleeves.”

Already facing turbulence from pandemic-related supply chain woes, the German economy’s problems deepened dramatically when Russia invaded Ukraine and slashed supplies of gas, hitting the country’s crucial manufacturers hard.

While the energy shock has faded, continued weakness in trading partners such as China, widespread strikes in recent months and higher eurozone interest rates have all prolonged the pain.

The European Central Bank has signalled it could start cutting borrowing costs in June, which would boost the eurozone.

But Habeck stressed that care was still needed as, despite the expectations of imminent easing, “tight monetary policy has not yet been lifted.”

In addition, disagreements in Chancellor Olaf Scholz’s three-party ruling coalition are hindering efforts to reignite growth, critics say.

This week the pro-business FDP party, a coalition partner, faced an angry backlash from Scholz’s SPD when it presented a 12-point plan for an “economic turnaround”, including deep cuts to state benefits.

Christian Lindner, the fiscally hawkish FDP finance minister, welcomed signs of “stabilisation” in the economic forecasts but stressed that projected medium-term growth was “too low to sustainably finance our state”.

“There are no arguments for postponing the economic turnaround,” he added.