Berlin Federal Finance Minister Christian Lindner (FDP) has announced a realignment of financial and budgetary policy. “You have to find the exit from the crisis mode,” said the FDP politician. Lindner described the politics of the past few years with the aid packages worth billions and the high level of new debt as “very expansive”. With the 2023 budget, “a different phase of financial policy” begins.
Lindner outlined what this should look like in a 21-page strategy paper that he presented on Wednesday with his economic adviser, the former head of economics, Lars Feld. The paper entitled “Fiscal policy at the turning point” will be “the guideline for financial and budgetary policy in the near future,” announced Lindner.
The strategy paper is a political signal. After the Liberals did poorly in the last state elections in Saarland and Schleswig-Holstein, Lindner is now reacting four days before the state elections in his home country of North Rhine-Westphalia. With the surcharge, he is also trying to sharpen the liberal profile in a core area of the FDP, financial policy.
This means that Lindner’s strategy is above all an announcement to the coalition partners. In some places, the paper reads like a reinterpretation of the coalition agreement concluded at the end of 2021. The Minister of Finance himself sees it as a reaction to the changed framework conditions. Inflation is at its highest level in four decades, while economic growth is weakening. The finance minister is therefore calling for an “economic turning point”.
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From Lindner’s point of view, it is no longer a matter of boosting demand with new state spending programs worth billions. Instead, what is needed is a reduction in debt and good framework conditions for the economy, i.e. a supply-side policy. “It’s not just about spending money,” said economist Feld.
Lindner wants to strengthen growth, avoid inflationary impulses and return to the debt brake. While these goals are largely undisputed in the traffic light government, the coalition partners should be upset about how Lindner wants to achieve these goals.
Lindner considers the tax burden on corporations to be too high in an international comparison. Germany still ranks behind France among the high-tax countries. The Minister of Finance said that the “framework conditions for companies had to be improved”.
Wanted: The right reaction to inflation
The second major topic Lindner addresses is inflation. There is a risk “that increased expectations of inflation in companies and unions will be incorporated into wage and other contract negotiations and that the currently high inflation will solidify in higher inflation rates in the medium term”.
As an expression of heightened uncertainty, the risk premiums that governments would have to pay on new debt have already increased. This could also make itself felt in the household in the medium term, and interest payments would rise.
The high fuel prices are causing concern for many citizens.
(Photo: IMAGO/Michael Gstettenbauer)
The state must therefore retain as much financial leeway as possible. Higher social spending is therefore counterproductive. Lindner wants to comply with the currently suspended debt brake again from 2023 and reduce Germany’s debt ratio.
Beware of an era of stagflation
The finance minister sees the danger of a new era of stagflation. There are a number of factors that will dampen growth and increase inflation in the medium term, such as low productivity growth, the aging of society or the climate-neutral restructuring of the economy.
Lindner hardly goes into detail in his paper, knowing full well that many of his proposals arouse little enthusiasm among the coalition partners. But even the few specific points that Lindner mentions in the paper are tough.
For example, the SPD, Greens and FDP agreed in the coalition negotiations not to touch corporate taxes. The SPD and the Greens are therefore unlikely to follow Lindner’s proposal to relieve companies. On the contrary: The Greens recently campaigned for an excess profit tax to put a heavier burden on companies that benefit from high energy prices. Lindner refuses. “Tax increases must be ruled out,” he said.
Instead, the finance minister emphasized again that he would like to completely abolish the solidarity surcharge, as this would relieve companies in particular – the SPD and the Greens should not participate in such a tax cut of ten billion euros.
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And the SPD and the Greens also have different ideas about the debt brake. Recently, there have been increasing calls from both parties to suspend the debt rule again in 2023. Lindner, on the other hand, has declared that he and his financial policy will be measured by whether he will comply with the debt rule again in 2023. He reaffirmed this goal when presenting his strategy paper.
Large relief packages launched
Accordingly, Lindner’s strategy paper was received with skepticism by the coalition partners. “The corona pandemic, the terrible war and also the climate crisis show that we need a capable and active state now and in the future,” said the Green Party’s chief economist, Sven-Christian Kindler. That is the central difference to the last three decades and that is where “the turning point in financial policy” lies.
Where Lindner puts the priority on budget consolidation, the Green politician emphasizes the state’s efficiency. “A state capable of acting needs sufficient income, which must be provided fairly according to its ability to perform,” said Kindler. The climate-neutral transformation of the economy requires a reliable public investment policy.
The finance minister was prepared for opposition from the coalition. He will also talk to the other departments about the new fiscal policy strategy. An “open discourse is intended”. However, there is no need for a cabinet referral. After all, these are the guidelines for financial policy. And that, that’s Lindner’s unspoken message, he determines.
More: Gigantic additional revenue: the state can count on tax trillions for the first time.