2023-11-27 08:11:35
Opinion federal budget
The debt brake is better than its reputation
As of: 07:11 a.m. | Reading time: 2 minutes
Economist Thomas Mayer
Quelle: picture alliance/dpa/Marc Comes
Is the debt brake really anti-future, as is often claimed? No, says WELT columnist Thomas Mayer: It has reduced Germany’s over-indebtedness and prevents a fatal form of redistribution between generations.
After the Federal Constitutional Court’s spectacular ruling on the debt brake, this became a topic of discussion. We hear that it is too rigid, anti-investment and out of date. It is true that looking at debt alone does not fully capture the state of public finances. Nevertheless, the debt brake can ensure solid government finances.
Since 2018, the International Monetary Fund (IMF) has been presenting asset balance sheets for a number of countries going back to the year 2000. The IMF estimates that the net assets of the German state resulting from the difference between fixed assets and liabilities for the year 2000 are around minus nine percent of gross domestic product (GDP).
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The over-indebtedness (shown by the negative value) increases in the following years to around minus 25 percent in 2005 and fluctuates around this value until 2011. That is, until the year in which the debt brake came into effect. After that, over-indebtedness begins to decrease, reaching a net worth of minus 3.7 percent of GDP in 2021.
In France, where the debt brake was never implemented, the state’s net assets fell from minus 25 percent in 2000 to minus 44 percent in 2020. The comparison of the USA with France is instructive. Although the Americans have a higher national debt ratio, they also have a higher national net worth than France. So it’s not just the debt that matters, but also how it is used to finance consumption or investments.
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A negative net worth indicates wealth loss through over-indebtedness and redistribution from wealth-poor taxpayers to a wealthy rentier class living on capital income. Future generations will have to bear the interest burden without benefiting from the assets acquired with the debt burden.
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Wealthy rentiers, who financed consumer spending instead of investments with the government debt they took on in their younger years, collect interest from younger taxpayers in their older years, with which they can finance further consumer spending.
Thomas Mayer is founding director of the Flossbach von Storch Research Institute.
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In order to display embedded content, your revocable consent to the transmission and processing of personal data is necessary, as the providers of the embedded content require this consent as third party providers [In diesem Zusammenhang können auch Nutzungsprofile (u.a. auf Basis von Cookie-IDs) gebildet und angereichert werden, auch außerhalb des EWR]. By setting the switch to “on”, you agree to this (revocable at any time). This also includes your consent to the transfer of certain personal data to third countries, including the USA, in accordance with Art. 49 (1) (a) GDPR. You can find more information about this. You can revoke your consent at any time using the switch and privacy at the bottom of the page.
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