The finance minister reckons that the corona crisis has not had as much of an impact on debt as feared.
(Photo: dpa)
Berlin Federal Finance Minister Olaf Scholz (SPD) expects lower debt in 2021 than assumed a few months ago. The general government deficit will be around 7.25 percent of gross domestic product (GDP) in the current year, according to the current budget projection that the Federal Ministry of Finance has submitted to the EU Commission. The paper is available to the Handelsblatt. In April, the Ministry of Finance had expected a government deficit of nine percent.
Correspondingly, Germany’s debt level is also expected to be lower. According to the report, it is expected to be 72.25 percent of the gross domestic product at the end of the year. In the spring, the federal government had assumed 74.5 percent. This means that the debt level in Germany remains comparatively low compared to other industrialized countries after the pandemic. In Europe it is 100 percent on average.
The Ministry of Finance also expects a further reduction in the coming years. For the year 2025, a general government debt of 67.25 percent is forecast.
This means that the increase in the debt ratio due to the corona pandemic will be less than the increase after the global financial crisis. At that time, the national debt had risen from 65.7 percent in 2008 to 82 percent in 2010. The economic slump was even more dramatic at the time. The effects on public finances are probably now smaller thanks to the billion-dollar rescue programs in the corona crisis.
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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. They are developing better than expected in the spring.
Higher new borrowing expected in the new year
For the coming year, however, the Federal Ministry of Finance expects higher new debt. The general government deficit will be around 3.25 percent of GDP in 2022, according to the paper. The federal government had previously assumed three percent. The deterioration results from higher federal and social security deficits, the report said. That overlay the better development in the communities.
For the coming years, the Federal Ministry of Finance expects a steady reduction in new debt by 2025. “At the end of the projection period, a balanced state budget is expected,” says the paper.
According to the report, the federal government will remain in the deficit for the longest, while budget balances are forecast for the federal states as early as 2023. According to this, the social security funds should be able to manage without a deficit again in 2023.
However, projections over several years are fraught with great uncertainty. The Federal Ministry of Finance sends the report to the EU Commission as part of budget monitoring.
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