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By Holger Hansen and Christian Kraemer
BERLIN (Reuters) – German Chancellor Olaf Scholz vowed on Friday to finalise the 2024 budget by the end of this year, in a video message aimed at reassuring frightened citizens and investors in Europe’s largest economy after a court ruling halted its completion plans.
Scholz’s government was forced to freeze the maximum of its new spending commitments after the Constitutional Court last week declared unconstitutional its plan to reallocate the pandemic-related budget to green projects and trade subsidies, thereby erasing billions from the federal budget.
“We will thoroughly review next year’s budget with the peace of mind, quickly but carefully,” Scholz said in a video posted on the X social network.
Scholz said his government would ask parliament to lift the debt brake on Germany, which limits its structural budget deficit to the equivalent of 0. 35% of gross domestic product, in order to secure aid planned for this year.
The chancellor plans to present a statement to Parliament on this issue next Tuesday.
Its finance minister, Christian Lindner, was less confident about the option of passing the 2024 budget this year, stating that this has not yet been noticed given that the government has a “very ambitious roadmap”.
A government source said it would probably be less difficult to reach a budget deal by mid-December after the Greens and Social Democrats, who are in place in a three-party coalition with the Free Democrats (FDP), hold party conferences.
The court’s ruling cast doubt on Germany’s historically strict tax policy and prompted warnings that German corporations could be deprived of resources to remain globally competitive.
Germany has the lowest debt in the G7 primary economies organization, yet memories of how frugality paved the way for postwar reconstruction and the top charge of reintegrating indebted former communist East Germany have shaped a political culture called anti-debt. . .
To continue supporting the industry, Lindner, leader of the politically aggressive FDP party, ruled out any tax increases and said the savings would be discovered elsewhere, supported through welfare state reform.
He plans to respect self-imposed borrowing limits and provide a supplemental budget for 2023 next week.
In an interview with the Handelsblatt newspaper, Lindner said the desire for consolidation amounts to double digits in billions.
In Germany, for example, electricity and fuel price caps will expire at the end of 2023 and run until March 2024, radio station Deutschlandfunk (DLF) reported, mentioning the latter in an interview broadcast on Sunday.
The debt brake, implemented after the 2008/09 global currency crisis, was first suspended in 2020 to help the government help businesses and health systems cope with the COVID-19 pandemic.
Lindner had been reluctant to suspend the mechanism because he was a staunch advocate of fiscal discipline, but relented when the budget crisis put even more pressure on Scholz’s three-party coalition.
HANDS TIED
The crisis has prompted calls to reform the debt brake. Pro-spending Greens Economy Minister Robert Habeck criticized it for being rigid and blocking important measures for industry to save jobs and create prices by moving abroad.
To a standing ovation at a Green Party conference, Habeck questioned whether the debt brake is applicable at a time when “climate coverage is not taken seriously, wars are a thing of the past, China is our reasonable institution. “
“With the debt brake as it is, we’ve tied our hands behind our backs and we’re headed for a boxing match,” he said.
However, government spokesman Steffen Hebestreit said on Friday that the reform, which would require a qualified majority in parliament, was not on the immediate agenda.
A vote by ZDF suggests that a minority of Germans are in favour of postponing the debt brake.
About 57 per cent need the budget deficit resulting from the court ruling to be covered by spending cuts, 11 per cent are in favour of a tax increase and 23 per cent need the state to borrow more.
(Reporting by Holger Hansen, Christian Kraemer, Miranda Murray and Rene Wagner; writing by Matthias Williams; editing by Tothrough Chopra, Gareth Jones and Deepa Babington)