For economist Bernd Raffelhüschen, the debt brake is “a blessing.” In the interview he takes a broad stance: against social spending, the energy transition and critics of the debt crisismse.
Chancellor Olaf Scholz renewed his promise in the Bundestag that the federal government would not leave anyone alone. You’ll never walk alone – despite the budget crisis. Given the Federal Constitutional Court’s ruling and massive savings, is this a serious promise?
Bernd Raffelhüschen: That’s of course a nice saying. But it has nothing to do with reality. Scholz is distracting from the constitutionality of his budgets. The supplementary budget that has now been introduced for 2023 is in principle a breach of the debt brake and therefore not constitutional – at least if there had been no emergency in 2023. And I don’t see them.
The war in Ukraine and the energy crisis are still having an impact this year. Doesn’t that justify hardship?
According to the Constitutional Court, an emergency must be exceptional and situational. We can’t just stretch out a topic from 2022 indefinitely. But the government has no other choice because the budget for 2023 only runs for four weeks.
Economists like Rüdiger Bachmann point out that crises usually last longer than one financial year – which is why the Federal Constitutional Court’s ruling is “macroeconomic illiteracy”. Is he right?
No, I see it differently in the current case. We have had emergencies in the past – for sure! The corona crisis, for example, made it necessary to suspend the debt brake. But the emergencies are over and the economy has had enough time to adapt. The strict separation according to budget years could be discussed, but it makes sense to re-determine the needs for each year. The problem is different.
Namely?
We massively inflated our budget during Corona and got used to it. In 2019 we had a budget of 350 billion euros, in 2022 it was 550 billion euros and in 2023 it was 480 billion euros. This means that we have not yet reduced the additional spending caused by Corona, even though the crisis no longer exists. And for 2024 we are now discussing a budget of 480 billion euros again. This cannot be sensible, rational financial management.
So you are in favor of making savings in the new budget in order to plug the resulting holes?
Yes, there is no other way. However, I don’t see a political solution: the SPD doesn’t want to tackle social spending, the Greens don’t want to tackle the energy transition and the FDP wants to adhere to the debt brake. It’s squaring the circle.
In your opinion, which side would have to accept cuts first?
The debt brake has constitutional status. We can no longer ignore this – not even with emergency programs or white lies. No, we have to address social spending, especially in terms of demographics. But we also have to get to the subsidies. It cannot be that the hasty energy transition leads us to de-industrialization.
Rushed?
Yes, excessive and hasty. Germany cannot stop global warming alone. And if other countries allow themselves ten more years for the energy transition, perhaps we should do the same.
But you also mentioned social spending. What are you thinking about?
We have to start at every corner. And not with nail scissors, but with a lawnmower. We must require everyone, without exception, to make a sacrifice. Starting with citizens’ money, which should be more closely linked to the individual’s willingness to perform, through to pensioners, whose pension increases should be below the general wage development of the working population. The same applies to pensioners and active civil servants. Knowing full well that I’ll soon be cutting myself in the flesh. To do this, we must use health spending much more efficiently. We have too many unspecialized hospitals that receive far too high subsidies. And we need more personal contribution when it comes to care. We have to get away from the idea that everything is always financed by the community budget. Because the coffers are filled by the working population – and there are fewer and fewer of them.
But those would be extremely unpopular measures…
These are measures that I would not say or take as a politician, because then I would lose my job.
Lower income groups in particular would suffer massively.
Germany not only has the richest rich in its history, but also the richest poor. We can easily expect everyone to help themselves to some extent. It’s not about abolishing basic security. It’s about moving away from the idea of basic security without benefits. Almost every person can and should do something. And if that’s not enough, then we’ll finish him off. That’s always been the idea of our welfare state. What I mean: It can’t be the case, for example, that in some parts of Berlin there is a 40 percent basic security rate – but no suitcases can be loaded at BER airport just because people are missing.
The left is trying it from the other side and proposing a wealth tax of two percent. Wouldn’t that be a way out for this particular situation?
No, definitely not. On the one hand, the rich already contribute an incredible amount. The top ten percent pay almost 50 percent of total income tax. On the other hand, there are very practical hurdles. A wealth tax must be assessed based on market values. This means an incredible administrative effort for the authorities, because someone has to estimate these market values. This could hardly be achieved or could only be achieved with significantly more staff – which in turn leads to higher costs. Half of the potential income would be gone again. So not a good idea from the left, as is so often the case.
In addition to social benefits, you would also cut subsidies. Where would you start here?
I would end the discussion about industrial electricity prices immediately. Instead, I would give the industry more time for the energy transition – five to ten years.
But companies repeatedly emphasize how important current electricity prices are for them.
Yes, and of course that’s true. It’s just that more than 50 percent of the electricity price consists of taxes and duties. If we now introduce the planned CO2 tax in full, then another 5 to 10 cents will be added. So the state begins to subsidize what it makes more expensive. Absurd.
In short: So we don’t have an income problem in Germany, but rather an expenditure problem?
Yes, definitely. In terms of GDP, revenues are higher than ever before. And then we shouldn’t be able to draw up a budget that complies with the constitution? I can not imagine that.
Other economists like Monika Schnitzer would still prefer to delete the debt brake from the Basic Law. Why are you so resistant to it?
From a formal legal point of view, the debt brake has constitutional status. Anyone who wants to abolish it needs a two-thirds majority – and I don’t see that. Personally, I see the debt brake as a blessing. If we didn’t have them, the dams would burst. It prevents gifts at the expense of future generations, because today’s debts are tomorrow’s taxes. The debt brake is what intergenerational justice contains in our constitution.
What about reforming the debt brake? The limit of 0.35 percent of gross domestic product that can be taken on in new debt each year seems rather arbitrary. Would you agree with that?
Yes, that is actually arbitrary and this is where you could start. But I would rather be in favor of 0.3 than 0.4 percent.
And if we exempted investments more from the debt brake, i.e. investments before government consumption? Ultimately, special funds were a similar instrument – only set up unconstitutionally.
It is a myth that the debt brake prevents the necessary investments. On the contrary, it prevents further spending on the welfare state. Think of the so-called peace dividend. We could have put our money into the military for many years. Instead, it ended up in the welfare state. This is just one of many problems when you think about highways, railways or other public infrastructure.
That’s exactly why it would make sense to take on debt – for public infrastructure, for example. We would be happy about it for many years to come.
I’m not very optimistic about that. If you look at the KTF, such pots are full of subsidies and not full of investment expenditure. That’s not really useful for our industry.
Jannik Tillar spoke to Bernd Raffelhüschen
Bernd Raffelhüschen is a professor of finance and director of the Intergenerational Contracts Research Center at the Albert Ludwig University of Freiburg. In addition to his involvement in international research projects, he is involved in questions of practical social policy – for example as a member of the Rürup Commission, the Tax Code Commission or as a board member of the Market Economy Foundation.