If you like, Christian Lindner defined the breaking point of this coalition. The head of the FDP and finance minister does not miss the fact that the first MPs in the Greens and SPD are clearly questioning the debt brake. In the ZDF-heute-journal he declared the re-compliance with the brakes in the coming year to be “non-negotiable”.
After internal criticism of his debt policy and the impending loss of the FDP brand core – solid state finances and no subsidy policy with the watering can – Lindner draws a clear red line, because that was also agreed in the coalition agreement. Conversely, if he falls over here, he actually has to resign from the traffic light coalition.
But the goal doesn’t want to fit the situation at all. In the SPD party headquarters, they are looking forward to autumn with a very uneasy feeling. Heating and electricity costs are the biggest burden, but food prices are also rising, fuel will remain very expensive, and at almost eight percent inflation has jumped to its highest level in 50 years.
In the state elections in North Rhine-Westphalia, it was the number one concern for citizens, not the Berlin debate about arms deliveries to Ukraine. And Lindner’s announcement will lead to tough distribution conflicts. Since the first year of the pandemic, 2020, people have gotten used to going into debt again.
Lindner’s debt brake budget for 2023 is currently being drawn up, he can hardly keep up with spending requests, such as from Labor and Social Affairs Minister Hubertus Heil (SPD) for climate money for incomes of up to 4000 euros gross and a significantly higher Hartz IV rate (which will be should be called citizen money). Above all, he himself wants to balance out the effects of cold progression, which is hitting the middle class hard.
But there was no discussion at all about how industrial and medium-sized companies could be given more support because of the enormously high energy and raw material prices. It’s a toxic melange right now.
But the previous give and take – a 9-euro ticket here, a 300-euro energy flat rate there and a tank discount there – will come to an end. Internally, Lindner insists on savings proposals elsewhere for every spending request, he is supported by Secretary of State Werner Gatzer, a member of the SPD but known as a tough dog who shows each department how much money it still has available if you want to go back to the debt brake. This will be the litmus test for the coalition.
But first of all, the budget for the current year is due to be passed in the Bundestag this week, with a slight delay due to the Bundestag elections and the formation of a new government. The federal budget and a supplementary budget for 2022 provide for additional debt totaling almost 139 billion euros.
For this, the Bundestag has to suspend the debt brake for the third year in a row. In addition, there is the debt-financed special fund for the Bundeswehr in the amount of 100 billion euros.
The Basic Law is to be changed on Friday with the votes of the Union parliamentary group so that the debt brake does not apply to the Bundeswehr fund.
Because of the two-thirds majority required for this, the largest opposition party is needed, despite some announced no votes in the left-wing camp of the SPD and Greens, the majority should stand.
Lindner is concerned that some could become “addicted” to more and more debt. Good economic policy does not mean that the state subsidizes everything in the long term. He is on the defensive in the Bundestag on Tuesday, especially the CDU budget politician Mathias Middelberg does not shy away from criticism.
“We are experiencing a memorable budget week with a record budget of almost 500 billion,” says Middelberg and emphasizes the direction of the Federal Minister of Finance: “Mr. Lindner, you’re just saddled up.” There are net 6,000 additional jobs in human resources. One could discuss that with a view to the federal police and others.
“But you’re also doing really well in government,” Middelberg criticized a “record number of 37 Parliamentary State Secretaries.” And there is also strong growth among civil servants in the highest salary brackets in the ministries. At the beginning of the grand coalition, when there was less job growth overall, the FDP thundered: “Whoever starts like this makes a black zero a black hole.” These are words that should hurt Linder on the government bench.
Lindner himself is trying to flip the switch, especially with a view to the Greens and SPD. He does not want to dwell on the corona and war-related debt policy, but is looking ahead. You shouldn’t continue to fuel inflation with new debts and social programs.
“The return to the debt brake means taking the pressure off prices by not always redistributing and inventing more and more subsidies.” He complains that there were always new, unforeseen things. Most recently, a billion-dollar liquidity grant to Ukraine “so that it can maintain its state functions,” says Lindner in the Bundestag. And places it in a very statesmanlike manner in a very large context. Without the decision, it would not be certain “that Ukraine can exercise its right to self-defense”. In addition, of course, the two citizen relief packages with over 30 billion euros, a higher basic allowance and lump sum.
But one of the most expensive projects, the tax cut of up to 35 cents per liter of gasoline, could fizzle out. Everything is connected to everything these days. Among other things, the EU decision for a far-reaching oil embargo by the EU against Russia is causing the price of oil to continue to rise, and there are also shortages – and there is no guarantee that the oil companies and petrol stations will pass on the discount one-to-one.
“It’s no secret, I would have preferred a different model where, like in Italy, you could have influenced the oil companies directly,” says Lindner.
He wanted the discount to be deducted directly when paying with 40 cents per liter, instead of a tax cut, which could fizzle out in a somewhat non-transparent pricing. “This tax cut must also be implemented now. That is now a task for the Cartel Office,” says Lindner. This is headed by Andreas Mundt, an FDP member. Somehow the principle of hope rules these days, so Lindner also mentions that with all the money, 1,400 additional jobs would be created at customs in order to fight financial crime, money laundering and undeclared work more effectively. It’s about protecting taxpayers “by catching the black sheep.”
Public finance expert at the Cologne Institute for Economic Research, Tobias Hentze, is very skeptical about Lindner’s 2023 project. “It is an enormous challenge to get from 140 billion euros in new debt to around eight billion euros in the coming year, that’s the leeway that the debt brake allows the federal government,” he said in an interview with the Tagesspiegel. One shouldn’t forget that the federal government could still incur new debts amounting to 0.35 percent of gross domestic product even if the brakes were observed. But what happens if the crisis continues or gets worse? Energy prices are expected to remain very high.
“Of course, inflation initially increases tax revenue in nominal terms. That’s why there is an expectation that the state will give something back,” says Hentze. “I think the political pressure to act will remain, also due to the high inflation, which has an impact on the tax rate with rising wages, keyword cold progression.
In addition, billions must be invested in order to make progress in climate protection and to convert industry accordingly.” Economically, the distortions caused by the war are immense. “Politicians could argue that there is an emergency situation, i.e. an exception to the debt brake can be made. A basic problem then, however, is that there is a risk that no more savings will be made or that cuts will be made elsewhere,” says Hentze, describing the dilemma that Lindner also sees. “You get the feeling that it doesn’t matter whether you take on 100, 130 or 180 billion in new debt.”