Future Budget Replaces Debt Brake
ResearchProposal for an Amendment to the German Basic Law
The reform of the Debt Brake that is now needed should not only mobilise more funds for defence in the short term. It must also permanently steer the federal budget towards future-oriented tasks and create a strong incentive for greater care in the allocation of funds. In line with this approach, a team of ZEW researchers, supported by the Strube Stiftung, has put forward a detailed package for a reform of the Debt Brake.
“Our Future Budget achieves what the existing Debt Brake has failed to accomplish: It limits new borrowing while creating incentives to adapt the expenditure structure more to the needs of future generations,” explains Professor Friedrich Heinemann, head of the ZEW Research Unit “Corporate Taxation and Public Finance”. At the same time, he recommends the concept for consideration in the ongoing deliberations in the Bundestag: “In their first draft financial package, CDU/CSU and SPD propose to exempt all defence expenditure above one per cent of GDP from the Debt Brake. This would pave the way to a very high permanent level of debt for the Bundeswehr. If there is a long-term need for significantly increased defence spending, then this must be offset in the current budget on a long-term basis too.”
Short-term: Special fund for defence and transformation
The proposal put forward by ZEW provides for a comprehensive package for the reform of the Debt Brake. In the short term, the federal government should be given more financial leeway, through a special fund for defence and transformation (Sondervermögen Verteidigung und Transformation, SVT) enshrined in the Basic Law, to cover the increased defence spending, which is inevitable and urgently needed. To prevent misappropriation of the SVT fund’s means, there should be an obligation that defence spending in the core budget must not fall below the current estimates in the financial plan until 2028 if the means are to be released.
Long-term: Future Budget Replaces Debt Brake in the Constitution
The economists propose that over the long run the new regulatory framework of a “Future Budget” should be constitutionally enshrined, replacing the former Debt Brake. The federal government will still be allowed to run a budget deficit of 0.35 per cent of GDP. Moreover, a new provision permits the federal and state governments to run additional deficits, subject to a cap, when their future-oriented spending exceeds a ten-year average. The provision applies to spending for investments in education, research and development, environmental protection, climate action and defence. This list should be incorporated in the Basic Law.
