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Fiscal Policy: Realize The Need For Action - Take Measures!

Press Release of December 17, 2014

The situation of public budgets is relaxed and will remain so in the years 2015 and 2016 - despite a slight weakening in the coming year. In 2014, the overall budget is estimated to show a surplus of 0.5 percent relative to nominal gross domestic product; next year the surplus will shrink to 0.1 percent - mainly due to the increased pension payments - and in 2016it will reach 0.4 percent. The debt ratio, which was over 80 percent in 2010, will have decreased to 66.3 percent in 2016. Furthermore policy met its prioritized objective of establishing abalanced budget at the federal level for the year 2015. In sum: Public finances have not appeared in such a favorable manner since before German unification. Compared to many other European countries, the situation in Germany looks bright. It does not follow, however, that everything about current German fiscal policy is right. On the contrary, government expenditure is not structured well and the overall fiscal situation is benefiting enormously from extra factors such as low interest rates on national debt and the effect of bracket creep which raises income tax revenue by more than the increase of real income. Recent fiscal policies have also placed an emphasis on non-durable expenditures rather than investment spending, financial scope has been foregiven, and there has been a failure to implement measures to increase potential economic growth. Instead, structural surpluses are being generated. The current policies do not appear to have supporting growth as their primary objective.

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