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POLITICS

KEY POINTS: How Germany plans to solve its budget crisis in 2024

Chancellor Olaf Scholz's coalition has reached an eleventh-hour agreement on how to solve a €17 billion black hole in the budget. With the German government clinging hard to its debt rules, some significant cuts will have to be made.

Finance ministry Germany
The German Finance Ministry in the snow. Will it be lights out for the government if a budget doesn't get passed? Photo: picture alliance/dpa | Fabian Sommer

It’s been a nail-biting few weeks for businesses and households in Germany as government ministers tried to thrash out their spending plans.

Thanks to a seminal decision in the Constitution Court back in November, Scholz’s coalition has been left trying to fill a €17 billion hole in the nation’s finances while still clinging onto its tight restrictions on borrowing.

On Wednesday, after weeks of closed-door negotiations, the chancellor held a press conference alongside Economics Minister Robert Habeck (Greens) and Finance Minister Christian Linder (FDP) to announce that a compromise had been found.

In a major win for the FDP, 2024 will see the return of the controversial debt brake, meaning borrowing will capped at just 0.35 percent of GDP. 

Instead, the government will make some hefty cuts – especially in the area of climate protection – and will also try and raise funds through other means. 

Here’s an overview of how the government wants to stabilise Germany’s finances next year. 

Major cuts to climate projects

Germany’s Climate and Transformation Fund (KTF) has been at the heart of this latest budget crisis – and as things stand, it appears it will be one of its biggest victims. 

In its landmark ruling, the Constitutional Court found that €60 billion of borrowing earmarked for the Covid crisis could not be redirected into the Climate Transformation Fund. 

The fund is aimed at revamping infrastructure in Germany to make it more climate-friendly, as well as promoting things like eco-friendly transport and renewable energy. 

In Wednesday’s press conference, Scholz emphasised that these goals hadn’t changed, but said the government would have to find ways to achieve them with much less money than before. 

READ ALSO: Debt limit returns in German coalition’s deal ending budget crisis

That will include scrapping some generous subsidies for e-cars and additional support for the solar industry, among other things, in order to reduce the fund by a total of €45 billion by 2027. 

Nevertheless, at least €160 billion for climate projects will remain in place, Scholz emphasised. 

Slashing “harmful” subsidies 

According to Finance Minister Christian Lindner, the government plans to end or reduce a number of environmentally harmful subsidies, with the savings totaling around €3 billion.

These saving will be used to finance a planned reduction in electricity tax in order to bring energy costs down for households.

“Old subsidies that are no longer needed are now helping us to prioritise future areas,” Lindner said.

Economics Minister Robert Habeck (Greens), Chancellor Olaf Scholz (SPD) and Finance Minister Christian Lindner (FDP) hold a press conference in Berlin. Photo: picture alliance/dpa | Michael Kappeler

So far, it isn’t entirely clear what harmful subsidies the government is talking about, since classic culprits like the commuter allowance and the lower taxation of company cars and diesel fuels are set to remain the same. 

What we do know so far is that subsidies for kerosine will be reduced, meaning flights could get much more expensive. The government is also planning to introduce a tax on plastic that could impact the price of products in plastic packaging, such as toiletries and certain groceries. 

Raising the CO2 tax 

The tax on CO2 emissions, which is currently set at €30 per tonne, will go up more than previously planned at the start of next year.

From January 2024, each tonne of CO2 emissions will be taxed at a rate of €45 per tonne as opposed to €40. Households are likely to feel this change most when purchasing products with a high carbon footprint such as energy, petrol and meat. 

With the increased income, the government wants to funnel more money into the Climate and Transformation Fund to limit the impact of climate change. 

Exceptions for ’emergency’ spending

Germany’s debt brake rule does allow the government to borrow more for certain unforeseen emergencies such as natural disasters or other crises like the Covid pandemic.

At the press conference on Wednesday, Scholz said he wanted to take advantage of this in order to provide an additional €2.7 billion of relief to victims of the Ahr valley flood catastrophe that occurred in July 2021. 

READ ALSO: Schuldenbremse: What is Germany’s debt brake and how does it affect residents?

He also said the debt brake could be temporarily suspended again if the situation in Ukraine worsened and more military aid or support was required. In order to do this, the government will try and get the conservative CDU and CSU on board – though it’s not certain the debt-sceptical opposition will play along with their plans.

A view of the destruction caused by floods in Ahr in Altenahr-Kreuzberg on July 19th 2021.

A view of the destruction caused by floods in Ahr in Altenahr-Kreuzberg on July 19th 2021. Photo: picture alliance/dpa | Boris Roessler

Tougher sanctions for benefits claimants

Though Labour Minister Hubertus Heil (SPD) has managed to cling on to a planned increase in Bürgergeld at the start of 2024, long-term benefits claimants didn’t escape entirely scot-free in the government’s plans.

In future, jobseekers who aren’t looking hard enough to find work or seem uncooperative will face higher sanctions from the jobcentre. In another stinging change, financial bonuses for people who undertake further training will also be scrapped for now.

Another way in which the government hopes to raise money is to encourage more unemployed people into work – including refugees who may have long-term prospects in Germany. 

Where isn’t the government making cuts? 

Though major budget cuts are on the horizon, there are three areas in particular where the government has avoided compromises.

The first is Ukraine, which is still set to receive billions of euros in weapons deliveries and aid to prop up its ailing economy. 

The second is social welfare, including plans to raise unemployment benefits by €61 to €563 per month and also introduce a universal child benefit that would package all previous child support measures into one and cost the government an extra €2.4 billion per year. 

The third is transport – most notably the revamp of Germany’s ailing rail infrastructure. According to both Habeck and Lindner, no cuts will be made when it comes to supporting Deutsche Bahn with its track refurbishments, though the money may have to come from different sources. 

READ ALSO: ‘2024 a turning point’: When will Germany’s rail network run on time?

Speaking at Wednesday’s press conference, Lindner also emphasised there would be no reduction in social standards in Germany despite the need for savings.

“Many ministries are making their own contributions, for example the Ministry of Transport, the Ministry of the Environment and the Ministry of Labour,” he explained. “But the important thing is that there will be no reduction in social standards.”

Member comments

    1. Hi Chris, thanks for your comment! The Constitutional Court struck down €60 billion of borrowing, but €43 billion of this was then covered by the extension of the debt brake in 2023. That left a €17 billion black hole in 2024, which the government has just reached a deal on. Apologies if the original piece wasn’t clear enough on that – I’ll happily add another few lines to clear it all up.

  1. Hello,

    If the black hole remained, does that mean that there are 17bn€ sitting in a gov’t account doing nothing? Just wondering where that money is given that it cannot go into the 2024 budget.

    Thanks!

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For members

GERMAN CITIZENSHIP

German conservatives vow to overturn dual citizenship if re-elected

Foreigners in Germany are waiting on tenterhooks for the introduction of the new dual nationality law on Thursday - but the centre-right CDU and CSU say they would overturn the reform if re-elected next year.

German conservatives vow to overturn dual citizenship if re-elected

“The CDU and CSU will reverse this unsuccessful reform,” Alexander Throm (CDU), spokesperson on domestic policy for the CDU/CSU parliamentary group, told DPA on Tuesday.

“Dual citizenship must remain the exception and be limited to countries that share our values.”

Throm also criticised the new citizenship law for reducing the amount of time foreigners need to live in the country before naturalising as Germans, describing the new residence requirements as “far too short”.

“After five or even three years, it is not yet possible to determine with certainty whether integration has been successful in the long term,” he stated.

“The recent caliphate demonstrations and the rampant Islamist extremism, often by people with German passports, must be a wake-up call for us all.”

READ ALSO: Which foreign residents are likely to become German after citizenship law change?

Despite vociferous opposition, the alliance between the Christian Democrats (CDU) and their Bavarian sister party (CSU) was powerless to stop the traffic-light coalition’s citizenship reform passing in both the Bundestag and Bundesrat earlier this year. 

The reform, which permits the holding of multiple passports, lowers residence requirements and removes language hurdles for certain groups, is set to come into force on June 27th. 

But with the CDU and CSU emerging as clear winners in the recent EU parliamentary elections and regularly landing on 30 percent or above in the polls, it’s possible that the party could be on course to re-enter government next year. 

In this situation, the centre-right parties have pledged to try and undo what senior CDU politicians have described as a “dangerous” reform.

“It is not unusual for successive governments to reverse decisions made by the previous government,” Andrea Lindholz, the head of the CDU/CSU parliamentary group said in a recent response to a question

“We will maintain our position on this and will continue to strive for a corresponding change.”

READ ALSO: What are citizenship offices around Germany doing to prepare for the new law?

Whether the CDU and CSU can secure enough votes at both state and federal elections to change the law in the future remains to be seen.

The parties may also have to compromise on their plans with any future coalition partner, such as the Greens, Social Democrats (SPD) or Free Democrats (FDP), all of whom support liberal immigration laws and the holding of multiple nationalities. 

‘Citizenship devaluation law’

The CDU and CSU parties, which form a centre-right alliance nicknamed the Union, have long been opposed to dual nationality in Germany.

During their years of governing in a so-called grand coalition with the centre-right Social Democrats (SPD), the parties had regularly made reforms of citizenship one of their red lines, citing the danger of hostile nations influencing Germany from within. 

In a recent parliamentary speech back in January, Throm had slammed the bill as a “citizenship devaluation law” and accused the government of trying to generate a new electorate to win votes.

CDU politician Alexander Throm speaks in a debate in the German Bundestag

CDU politician Alexander Throm speaks in a debate in the German Bundestag. Photo: picture alliance/dpa | Christoph Soeder

In comments aimed primarily at Germany’s large Turkish diaspora, the CDU politician claimed that people who had lived in Germany for decades but not taken German citizenship had already chosen their old country over Germany.

The majority of Turks in Germany are also supporters of the authoritarian president Recep Erdogan, he argued.

Responding to the claims, FDP migration expert Ann-Veruschka Jurisch said the opposition was fuelling resentments against migrants by claiming the government was “squandering German citizenship”.

In fact, she argued, the reform has tightened up requirements by ensuring that people who claim benefits and cannot support themselves are unable to become German citizens.

READ ALSO: What you need to know about Germany’s citizenship law reform

In addition, the B1 language requirements have only been softened in a few exceptional cases, for example to honour the lifetime achievements of the guest worker generation who had few opportunities when they arrived, Jurisch said. 

If foreigners have committed crimes, the authorities will be able to investigate whether these involved racist or anti-Semitic motives before citizenship is granted, she added. 

With reporting by DPA

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