Berlin The President of the Federal Audit Office, Kay Scheller, has criticized the traffic light coalition’s plans to build billions in reserves for future investments. “This is constitutionally problematic,” said Scheller to the Handelsblatt. The chief auditor referred to the plan mentioned in the coalition agreement to park unused money from the current year’s budget in the Energy and Climate Fund (EKF).
“Normally you would have simply reduced the loan requirement this year if you don’t need the money,” said Scheller. “Now the debts should still be taken on in order to have room for maneuver for the future.” In the 2021 budget, a record debt of 240 billion euros is planned due to the corona pandemic. The Federal Ministry of Finance now assumes that only 180 billion euros will be needed.
According to the traffic light coalition, the rest could be put as a reserve in the EKF. “The funds were intended for combating pandemics, now they are to be used for climate investments in the coming years,” criticized Scheller. “There is then no reference to the emergency with which the suspension of the debt brake was justified.”
The President of the Federal Audit Office is also critical of the traffic light’s plan to pay off the corona debts later. “Burdens will continue to be postponed into the future and to the next generation,” said Scheller. This also increases the risk that interest rates will rise and the overall credit burdens for the state would increase.
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Scheller praised the traffic light for its commitment to the debt brake. “I think the commitment to solid finances is good,” he said. Mainly because it is backed by the commitment to comply with the debt brake again from 2023. “Sticking to the debt brake is an important and good decision for the country and especially for the coming generation.”
The traffic light’s plan to review existing expenses and reduce subsidies also met with Scheller’s approval. However, he considers the commitment to consolidation to be too “vague”. “I would have liked to see a few specific things that would be deleted,” said Scheller.
Read the entire interview here:
Mr Scheller, in the coalition agreement, the SPD, Greens and FDP commit to the debt brake. How happy were you to read this?
I think the commitment to solid finances is good. Mainly because it is backed by the commitment to comply with the debt brake again from 2023. Sticking to the debt brake is an important and good decision for the country and especially for the coming generation.
Isn’t it much more important for young people that the coalition invests massively in climate protection?
These investments are necessary and are also part of the coalition agreement. But they don’t necessarily have to be financed with loans. The SPD, Greens and FDP have announced budget consolidation and want to review and re-prioritize spending. You have also announced an intensified fight against tax fraud; Subsidies are to be cut. That can improve revenue.
Other coalitions announced this before the traffic lights, but little has happened then. Why should it be any different now?
Unfortunately you are right. The commitment to consolidation is also too vague for me. I would have liked a few specific things to be deleted. In the past, the Greens in particular had submitted lists of climate-damaging subsidies that they wanted to reduce. It is a shame that there is little specific information about this in the coalition agreement. In this respect, the litmus test is still to come when the coalition presents the new budget for 2022. Then she has to show her true colors.
The traffic light also uses its bag of tricks to meet the many spending requests despite the debt brake. She wants to use billions in loan approvals, which she does not need this year, to build up a climate reserve for years to come. What do you think of this project?
This is constitutionally problematic. Normally you would have simply cut your loan needs this year if you don’t need the money. Now the debts should be taken on anyway, in order to have room for maneuver for the future.
Why is this constitutionally questionable?
The grand coalition has planned a record debt of 240 billion euros for this year due to the corona pandemic. That was only possible because the debt brake requirements were suspended due to the emergency. If the 240 billion euros are not needed in full, the emergency loan borrowing will decrease, and the debt will decrease accordingly. Instead, the money is now being put into a special fund.
The funds were earmarked for combating the pandemic, now they are to be used for climate investments in the coming years. There is then no reference to the emergency situation with which the suspension of the debt brake was justified.
The traffic light also wants to pay off the corona debt later than previously planned. Instead of 2023, they want to pay back the loans only from 2028 and then take their time until 2058. This also gives the SPD, Greens and FDP additional leeway.
I see that critically. The burdens will continue to be postponed into the future and to the next generation. This also increases the risk that interest rates will rise and the credit burdens for the state as a whole will increase. We should not forget that the federal government has now amassed EUR 1.5 trillion in debt.
How big is the interest rate risk?
Interest rates are currently low, but we are dealing with massive inflation, which is fully affecting the prices of food, energy and the construction sector. If the interest rates had to be adjusted, we would have to pay quite a bit more with the federal government. Rising interest burdens would restrict future governments’ room for maneuver. Therefore, everything speaks in favor of adhering to the debt rule and rather less financing through loans.
The coalition agreement also mentions public-private partnerships (PPPs) as a possible instrument for financing projects. The Court of Auditors has always been very skeptical about this in previous reports. How do you see this idea?
PPP can be one way forward if the profitability of such projects has been proven beyond doubt. However, PPP projects only relieve the budget for a short time. The large investment at the beginning is not necessary, but the state has to pay the private companies involved over a longer period of time, plus a yield premium. So in the end, the federal government pays one way or another. There are also plans to give public companies more leeway by the state granting them more debt or providing them with more equity, neither of which would be counted towards the debt brake.
Isn’t that just window dressing because the risk is borne by the taxpayer one way or another?
The danger is there. Even today, the railway has reached a debt of around 32 billion euros. In the end, the question will be whether there is a federal interest in such transactions, whether and how the risk affects the owner and what guarantees are there. The coalition agreement does not contain any specific statements on this. It is important, however, that no secondary budgets arise and that the budget legislator is involved.
The traffic light wants to stabilize the pension level, but at the same time keep the pension contribution relatively stable. How does that work?
While the traffic light’s decisions on savings are relatively vague, they are very specific on spending and social issues. This also applies to the pension. If the levers of contribution rate, pension level and entry age are to remain unchanged, the money for this will have to come from the federal budget, and the taxpayer contribution to the pension system will increase even more. We take a critical view of this because it restricts the room for maneuver for future generations. But there is also a positive aspect to the pension decisions.
And which would be?
The new coalition wants the so-called catch-up factor to come into force again, which dampens the rise in pensions after falling wages so that pensions and wages are synchronized again. That makes a lot of sense and was a request that we as the Court of Auditors have been pushing for a long time. That should save roughly five billion euros in spending by 2025.
The coalition did not touch the solidarity surcharge. The remaining solos for the ten percent of top earners remains. Would you have advocated abolition?
The traffic light takes a risk by maintaining the solidarity surcharge. If Karlsruhe comes to the conclusion that the Soli is unconstitutional, the federal government is missing ten billion euros a year in one fell swoop. Maybe even more if the judgment applies retrospectively. It would therefore have been better to tackle the problem by doing away with the solos altogether.
More: How the economy evaluates the traffic light plans