2024-07-27 06:35:22
Economist Monika Schnitzer is skeptical that the traffic light coalition’s package will achieve much in terms of economic growth. What would be needed instead – and what needs to be done with pensions.
Germany’s economy is not making any progress. After a loss last year, experts are expecting only a small increase in economic output this year. To change that, the traffic light coalition now wants to launch a major growth package, including tax relief, reducing bureaucracy and tougher sanctions for recipients of citizen’s allowance.
But is that enough? Monika Schnitzer, chairwoman of the Council of Five Economic Experts, is skeptical. In an interview with t-online, she explains why the government would be better off taking on more debt, why the tax splitting system for spouses needs to be reformed and why Germans should work longer.
t-online: Ms. Schnitzer, in addition to the budget for 2025, the traffic light government has also presented a package for more growth. Will everything finally be OK for the ailing German economy?
Monika Schnitzer: No, but that would be expecting too much. It is good that the traffic light coalition has agreed on a budget at all, because there were already doubts about that. However, the growth package is unlikely to provide a major boost to the economy.
Economics Minister Robert Habeck is more optimistic; he expects an economic increase of 0.5 percent next year if all 49 measures are implemented. Why don’t you share his optimism?
Many of the measures are going in the right direction. Reducing bureaucracy, for example, will help companies, and better depreciation options will certainly help too. But all of these measures are unlikely to bring about 0.5 percent more growth in the short term; that is not very realistic. The financial scope of the relief for companies is too small for that.
Does that mean that even more tax relief would have been needed, as companies are demanding?
Given the strained budget situation, we can hardly afford major tax discussions. However, there are other ways we can stimulate the economy and at the same time improve our infrastructure.
The state must invest far more in defence, but also in infrastructure
Monika Schnitzer
They mean more government debt, money for investments, for example for the renovation of dilapidated bridges, railways and highways.
That’s right. The state must invest far more, in defense, but also in infrastructure. This will only be possible through more loans, which the tight corset of the debt brake does not currently allow. As the Council of Experts, we made proposals at the beginning of the year on how the debt brake could be reformed. Specifically, we should loosen the debt brake depending on the national debt ratio and allow net borrowing of 1.0 percent of gross domestic product annually if it is below 60 percent, instead of the current 0.35 percent. For debt ratios between 60 and 90 percent, we propose a permissible net borrowing of 0.5 percent. That would have significantly increased the scope, because we are just above the 60 percent threshold. But the traffic light coalition has wasted this opportunity because one of the three partners is dogmatically sticking to the debt brake and the opposition would also have to be convinced.
In the past, the problem was often that the state went into debt, promised to use the money to build roads – but ended up financing things like the mother’s pension. How can this be addressed?
This danger is indeed real. One idea that is currently being discussed a lot is that of a special infrastructure fund similar to the one enshrined in the Basic Law for the Bundeswehr. This certainly has its appeal, because then it is clear that the money in this pot really only goes to large infrastructure projects. But it also opens up scope in the budget, which may then be used for the wrong things. Moreover, such a fund would eventually be empty again. That is why I have something else in mind.
For example, in addition to the aforementioned reform of the debt brake, we could set a fixed investment quota for the renovation of our infrastructure. In other words, similar to NATO’s two percent target for the defense budget, we could set a quota for investments in bridges, roads, railways and more.