A trick in the coalition agreement – the traffic light wants to finance its billion-dollar plans with a special trick

A trick in the coalition agreement: The traffic light wants to finance its billion-dollar plans with a special trick

The traffic light coalition wants to make Germany more climate-friendly, more modern and fairer – that costs billions. At the same time, however, there should be no tax increases, and the so-called debt brake will remain in place. How does that work? The next federal government wants to square the circle with a special trick.

It is in the nature of things that coalition agreements usually read like a long shopping list. Election promises cost money, and each party involved wants at least some of their promises represented in the final contract. This also applies to the coalition agreement of the designated traffic light government. Energy transition, rail traffic, pensions, digitization – if the SPD, Greens and FDP want to “dare to make more progress”, as the coalition agreement is titled, it will cost billions.

But where do the billions come from? Because at the same time, the traffic light coalition have agreed on two things, the not to come: tax hikes and new debts. The debt brake anchored in the Basic Law provides that the federal government may only borrow 0.35 percent of the gross domestic product annually. In order to cushion the economic consequences of the corona pandemic, the debt brake is currently suspended, but it should apply again from 2023. So how is that supposed to work with the financing?

“A lot of hope, little ideas”

This is apparently still controversial among the traffic light coalitionists. Because in many of the announced projects, the three parties neither reveal how much it will cost, nor where the money will come from. He did not “get the bill together”, criticized the director of the Institute for the German Economy (IW), Michael Hüther, opposite the news portal T-Online. “My impression is that there is still a lot of hope in budget policy and only a few ideas on how to actually shape it.”

However, the new federal government is accommodating two developments for which it is not responsible. On the one hand, the debt brake will still be suspended in 2022 – in the next 13 months the SPD, Greens and FDP can take on debt to their hearts’ content and push as many projects as possible. And secondly, there is an unexpected tax blessing: From 2022 to 2025 inclusive, the federal tax revenue alone will be almost 60 billion euros higher than expected, announced the finance ministry headed by soon-to-be Chancellor Olaf Scholz (SPD) two weeks ago. The traffic light provides the space that is urgently needed.

A piggy bank for the climate crisis

But on the last pages of the 177-page coalition agreement, the traffic light also outlined a daring trick from which the billions in investments are to be fed: a reform of the “Energy and Climate Fund” (EKFG). This little-known money pot has existed since 2010, it is mainly fed from income from auctions as part of the so-called EU emissions trading. In addition, there are a few subsidies from the state treasury. The traffic light now wants to convert the EKFG into a “transformation fund” – and turn it into a piggy bank that will finance the energy transition.

And it works like this: Debt-financed funds from the 2021 budget, which have already been planned but not called (so-called “credit authorizations”), want to shift the traffic light to the new “transformation fund”. On Thursday, SPD parliamentary group vice-president Achim Post announced a corresponding supplementary budget. At the same time, the traffic light wants to continue to pep up the piggy bank with funds from the federal budget in 2022 (where you can still go into debt). “With the federal budget 2022 we will examine how we can further strengthen the climate and transformation fund within the framework of the constitutional possibilities,” says the coalition agreement.

The highlight: At the same time, the traffic light government wants to change the calculation of the debt brake so that these new special funds are no longer part of the federal budget – and thus would not be affected by the debt brake. The result would be a reserve of possibly hundreds of billions of euros, which the traffic light could use at any time. “The state will suck itself up with loans in 2022,” said Dr. Jens Boysen-Hogrefe from the Kiel Institute for the World Economy.

“Will be exciting to see”

Even among more conservative economists, the idea has many supporters. It was made popular by Clemens Fuest, the President of the Ifo Institute, which otherwise actually speaks out against new borrowing. When Fuest got the idea in October for the first time outlined in the “Frankfurter Allgemeine Sonntagszeitung”, the negotiating delegations of the traffic light are said to have reacted enthusiastically, it said. In Olaf Scholz’s circle, the suggestion was received “with delight”, reported the “Handelsblatt” at the time.

It is still unclear whether the idea will last. Even Fuest himself has doubts as to whether it is constitutional. “It will be exciting to see whether the Federal Constitutional Court will play along,” wrote Fuest on Twitter on Wednesday. He had “asked various constitutional lawyers who had doubts”. Because: The debt brake has been suspended in order to counter the economic consequences of the corona pandemic – new borrowing for other purposes is at least constitutionally difficult. The ratio of special funds to the debt brake is also likely to be viewed critically.

Anger about “shadow households”

The traffic light argues in the coalition paper that the global climate crisis is endangering the economic upswing after Corona, therefore climate and Corona should be viewed as a common field of action. At least the FDP seems to agree with this line of argument, and it can be assumed that the traffic light parties had their plan checked under constitutional law beforehand.

But the future opposition is already getting into position. The traffic light coalition is financed through “shadow budgets”, criticized Thorsten Frei, vice-head of the Union parliamentary group in the Bundestag, on Wednesday on the Phoenix news channel. “That’s why I read many points in the coalition agreement that are not sustainable, that are not intergenerational.”

Rail reform and dismantling of subsidies

But the traffic lights on the last pages of the coalition agreement also present some other ideas for financing. For example, a reform of Deutsche Bahn: So far, the infrastructure profits from the lucrative network division have always flowed into the entire group profit – and have pepped up the balance sheets there without being used for the railways. In the future, the profits should remain in the network division and be used for the “common good” for the expansion of the rail network.

The repayment of the corona debts should also start later and take significantly longer, which creates short-term leeway. The state development bank KfW is to finance private investments in climate protection – bypassing the debt brake. “Superfluous, ineffective and environmentally and climate-damaging subsidies and expenditures” should be abolished according to the coalition agreement. As an example, the traffic light parties cite the indirect tax subsidy for diesel and the state subsidy for plug-in hybrid cars.

Suddenly a money laundering fighter

And: The traffic light wants to declare war on tax evasion and money laundering – that too would increase income. “Germany will play a pioneering role in the fight against tax evasion and aggressive (sic) tax avoidance,” says the coalition paper. “We will ensure that tax losses incurred are consistently reclaimed and collected.”

Spicy: The Federal Financial Services Agency (Bafin) and the FIU customs authority, which have been the focus of tax and money laundering scandals in recent years, are also explicitly mentioned. Their boss was last called: Olaf Scholz.

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