Crisis averted? German government announces new budget for 2024
After a month of fraught discussions, at a press conference on December 13, the German government confirmed that it will not overstep the debt brake in 2024, and will abolish “climate-damaging subsidies” and sell off the Deutsche Bahn Schenker subsidiary to make savings.
Scholz announces new German budget for 2024
Germany’s governing traffic-light coalition, led by Olaf Scholz, has now announced details of how it will fill the 17-billion-euro hole in its budget for 2024.
The month-long budget crisis hopefully came to a close this morning as leading politicians of the coalition were seen leaving negotiations at around 3.30 am. Taking to the press conference podium early this afternoon, a weary-eyed Scholz was flanked by Finance Minister Christian Lindner (FDP) and Minister for Economic Affairs and Climate Action Rober Habeck (Greens) and announced first and foremost that Germany would “stick to its original goals” but with less money and without overstepping the country’s debt brake (Schuldenbremse).
The government confirmed that it would not use the ongoing war in Ukraine to declare an “emergency situation”, a move which would legally allow Germany to overstep the debt brake and borrow more than 0,35 percent of GDP to fund the 17-billion budget. However, Scholz suggested that the Bundestag may vote on whether to overstep the debt brake later on in 2024 if the situation in Ukraine worsens. “We have to clarify what we can afford and what we can’t,” Scholz told his audience.
How will the government fill the 17-billion-euro funding hole?
Instead, three main avenues are to be taken in order to fill the 17-billion-euro hole in the 2024 budget. The government will abolish “climate-damaging subsidies” (klimaschädliche Subventionen), which include policies such as tax rebates for diesel fuel, tax breaks for company cars and reduced taxes on meat. The two further avenues will be used to “reduce the expenditure in individual government departments and reduce federal subsidies”.
Scholz announced that a large part of the budget hole would be filled by cutting the country’s planned climate transformation fund (KTF) by 12 billion in 2024 and a total of 45 billion by 2027. This brings the new KTF budget down to 160 billion. For context, Germany’s current climate policy means that the effects of the climate crisis are set to cost the country 900 billion euros by 2050.
Additionally, Habeck announced that the country would scrap its subsidy for people who would like to buy electric cars earlier than originally planned, though no specific date was given. When it comes to public transport, Lindner added that Deutsche Bahn would sell off Schenker, a logistics and freight transport subsidiary of the international company.
The three coalition leaders did not allow journalists to pose follow-up questions after their announcement, but further details are set to be clarified throughout the day.
Why did Germany have to come up with a new budget so quickly?
Problems first arose in mid-November when the German constitutional court in Baden-Württemberg ruled that funding for the 2024 budget, which was already announced in July, had not been sourced legally. To fund the budget, the German government had planned to redistribute 60 billion euros leftover from emergency policies to tackle coronavirus and spend it on the climate transformation fund.
In previous years, the coronavirus crisis and the Ukraine war were used as justifications to declare an “emergency situation”, meaning the government could borrow more than the tax brake allowed to fund budget policies such as the energy price cap (Gaspreisbremse).
But Lindner determined not to declare an emergency situation, the constitutional court ruling forced the government back to the drawing board to hastily write up a new budget plan with the looming Christmas holidays adding even more pressure.