In the usual good mood, Altmaier presented the board with the expected development of the gross domestic product (GDP). But to announce good news for goodbye, Altmaier was not really granted. The minister lowered the projection for the current year to 2.6 percent.
At the negotiating tables for the possible new federal government made up of the SPD, Greens and FDP, the news is likely to cause uncertainty. The economic forecast is the basis for the tax estimate. And that decisively decides how much money the new federal government will be able to spend.
The economic situation does not have to affect tax revenues to the same extent and within a short period of time, says budget expert Jens Boysen-Hogrefe from the Institute for the World Economy: “The economic dent is, however, a clear downside risk for revenues.”
In their exploratory paper, the traffic light negotiators had outlined various costly projects such as a super depreciation program or a minimum pension level of 48 percent. At the same time, the debt brake, which will apply again from 2023, is to be retained.
Catched up tax revenues questionable
However, growth has not been canceled, it has probably only been postponed. Altmaier’s forecast now predicts 4.1 percent growth for 2022, previously his house had expected 3.6 percent. “Overall, I am assuming that we will experience growth and that tax revenues will also grow in the next year,” said Altmaier. However, the minister stated that he was “much more cautious” in terms of reliability when making the estimate for 2022, in contrast to the one for 2021.
Economist Boysen-Hogrefe explains: “For a possible new coalition, the outlook beyond the current year is of course associated with uncertainty, so that one or the other project will remain subject to financing.”
The economic projection does not reveal which government deficits are to be expected. A good indicator of this, however, is the joint forecast of the major economic institutes, on which the government’s projection is based. With an increase of 2.4 percent this year, it is close to the government’s calculations, and with 4.8 percent for the coming year it is even more optimistic.
Nevertheless, on this basis, the augurs expect a significantly larger imbalance in public finances than was the case with the previous forecast in the spring. For 2021, the minus of the adjusted general government balance will be five billion euros higher than was expected in the spring, shows the joint forecast. For 2022 it is a difference of almost 30 billion euros.
It was hoped that the coalition would have more money at its disposal. Finance Minister Olaf Scholz (SPD) had last expected lower debt for 2021 than assumed a few months ago. The general government deficit will be around 7.25 percent of GDP in the current year, according to the current budget projection for the EU Commission, which is available to the Handelsblatt.
In April, the Ministry of Finance was still expecting a government deficit of nine percent. In the report to Brussels, Scholz officials wrote that the improvement in the current year would primarily be due to the increase in tax revenues. Torsten Schmidt, Economic Director at the Leibniz Institute for Economic Research (RWI) in Essen, explains: “Now one thing is clear: tax revenues will initially be lower. It is even more difficult to assess whether the growth and thus the income can actually be made up for in 2022. “
How much money the possible traffic light coalition can ultimately plan depends above all on the further development of the delivery problems. Industrial production has been suffering for months due to a lack of expensive raw materials and inputs.
The high demand after the pandemic and restrictions in logistics are making themselves felt. Ships are stowed in front of the major ports in the USA and China.
Hardly anyone had expected it. The German government wrote in its spring projection that the industry will “expand solidly in the next few months”. Altmaier now said: “It would have been wrong to speculate about supply chain disruptions without knowing them.”
The minister expects the problems to largely resolve themselves and the economy to return to pre-crisis levels in 2022. But that is far from clear. “It’s not just a problem in the supply chain, but also in production,” says Altmaier. Especially with the shortage of semiconductors, which hits the German automotive industry hard, it is not clear how quickly new production capacities can be built up.
Lindner wants to wait with energy prices, so Altmaier
In the meantime, the high energy prices are also becoming a problem for economic development. The imbalance between supply and demand as a result of the pandemic has also created problems in this area.
The prices for gas, oil and electricity are at record highs. Added to this are burdens from the pricing of CO2 emissions. “I very much hope that the price development will be more predictable,” said Altmaier.
Energy prices are expected to normalize in 2022, but that is far from certain. Berlin and Brussels are therefore discussing instruments for relief. The EU Commission has brought a whole package of measures into play. Other European countries have already reacted with direct market interventions such as price caps.
Altmaier recently proposed the complete abolition of the EEG surcharge, which drives up the electricity price in particular, for 2023. The elimination of the levy also appears in the exploratory paper of the traffic light parties, but without a date.
Altmaier said he had already approached politicians from the SPD, Greens and FDP to clarify measures against rising energy prices. When presenting the economic projection, he criticized the FDP party leader: “I understood Christian Lindner to mean that he believes that it can wait until the new government is in office.”
Another factor of uncertainty is the development of the price level. Private consumption continues to rise. The high demand and supply bottlenecks mean that prices are rising. Most recently, the inflation rate was more than four percent.
If the federal government is right with its forecast and supply bottlenecks and energy prices actually normalize, this should also apply to inflation.
The government expects consumer prices to rise much more slowly in the coming year. The inflation rate will be three percent this year, as high as it has been since 1993, as the autumn projection shows. In 2022, however, it is expected to decrease to 2.2 percent and even to 1.7 percent in 2023.
All-clear for inflation
The prerequisite for this is that no wage-price spiral starts. The high prices could lead to high wage demands. Higher incomes would in turn raise household demand and prices. However, the federal government does not expect this. It is true that net wages would rise more sharply again with a plus of 3.8 percent this year and 2.9 percent next year. But this is mainly due to the pronounced wage restraint during the crisis last year.
He is now experiencing rising prices and delivery bottlenecks first hand, reported Altmaier. The outgoing Minister of Economic Affairs is preparing for what he called “life after life”. Altmaier has not been a member of the Bundestag since Tuesday and is only acting minister until the new government takes office. Now, as a private citizen, he has to equip himself differently, including a car. Altmaier did not want to reveal whether he would rely on an electric car due to the massively rising energy prices.
More: Economist Lars Feld criticizes traffic light financing plans.