Federal Budget 2024: Special Funds Drive Future Quota
ResearchZEW Study Investigates Investments in the Country’s Future
In 2024, the future quota attained the highest value since 2018: With 21.3 per cent of federal spending, around one in five euros of the total federal budget was dedicated to future-oriented tasks. However, this focus is driven by the special funds earmarked for digital infrastructure, climate action and transformation as well as German defence spending. When considering solely the core budget, the future quota noticeably declined: It was down at 18.0 per cent, after 19.8 per cent in the previous year. These are the findings of a study conducted by ZEW Mannheim and funded by the foundation Strube Stiftung.
“Shifting future challenges to separate funds outside the core budget can have a discouraging effect on political ambitions to mobilise resources for digitalisation, climate action or defence in the core budget. This pattern is obvious in the 2024 budget: The more future-oriented impulses created by the off-budget funds were almost completely offset by a shrinking future quota in the core budget,” says Professor Friedrich Heinemann, head of ZEW’s Research Unit “Corporate Taxation and Public Finance”.
Special funds are more future-oriented
In the past, special funds had gained in importance until the Federal Constitutional Court’s handed down a ruling in November 2023. In 2023, the off-budget funds accounted for slightly more than 15 per cent of total federal spending. A comparison shows that the special funds are considerably more future-oriented than the core budget. It is noteworthy that future orientation is particularly strong in digital infrastructure investments, with a future quota of 100 per cent. However, at 50 per cent, the quota is also high for the defence-related special funds and the climate and transformation funds.
“Against this backdrop, reform ideas for the German debt brake which propose new debt-founded special funds in addition to the core budget should be viewed with scepticism. Binding requirements are needed for the expenditure structure in the core budget to ensure a greater future orientation of the total federal budget. Ultimately, there is a risk that, overall, new debt would only finance an expansion in consumptive spending,” says Heinemann.
What is the future quota?
The future quota is an innovative indicator developed by ZEW Mannheim that assesses how well the federal budget is aligned to future challenges. In contrast to the traditional investment ratio, the future quota does not just look at investments. It also classifies and weights all expenditure according to its relevance to the future. To this end, expenditure is assessed on the basis of the following criteria: growth-relevant infrastructure, technical knowledge, human capital and natural capital. The future quota provides greater transparency about the degree to which the government’s planning is forward-looking. It can also make a valuable contribution to the debate on a debt brake reform.
