“Low Deficit Also a Symptom for High Investment Hurdles”

According to preliminary calculations by the German Federal Statistical Office (Destatis), the coronavirus crisis in 2020 resulted in the government deficit totalling 139.6 billion euros. Professor Friedrich Heinemann, head of ZEW’s Research Department “Corporate Taxation and Public Finance”, comments on this issue:

“With a budget deficit ratio of 4.2 per cent, Germany has generated an excellent figure for the economically abysmal year that was 2020. This is a distinctly lower figure compared to the two-figure budget deficit ratios in France and Southern Europe. The deep recession that has been witnessed in the past year is barely noticeable through this figure. The USA, for example, has not been able to achieve such a low government deficit in a single year since the financial crisis, and in 2020 it is almost four times that level.

Nevertheless, this should not be a reason for fiscal recklessness. The actual problem for the sustainability of German government debt does not lie in the coronavirus crisis-inflicted deficit, but rather in the dynamically increasing expenditure on the healthcare system and state pensions. As more and more promises are made, the crisis is unleashing a spending dynamic that will continue to take effect beyond the pandemic. A further disadvantage is that the government would have preferred to spend much more money and run a higher deficit with its stimulus packages last year. However, this has not been possible due to the bottlenecks in administration and lengthy bureaucratic processes. In this respect, the low deficit is also a symptom of the burden of bureaucracy and the high hurdles for investment in Germany.”