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6 July 2018

Draft 2019 bud­get and fi­nan­cial plan to 2022: for­ward-look­ing, fair and re­spon­si­ble

On 6 July 2018, Germany’s federal cabinet adopted the government draft for the 2019 federal budget and the financial plan to 2022.

  • Number 07
Werner Gatzer, Olaf Scholz and another representative
Source:  Federal Ministry of Finance

The economy is humming, employment is at record highs, and public finances are in good shape. Nevertheless, we still face urgent problems. The draft 2019 budget tackles key challenges – in Germany, in Europe and in the world. My plans include record investment levels, which means more money for well-built roads, high-quality rail transport, and high-speed internet, and more resources for education and research. We are boosting spending to enhance social cohesion. We are taking steps to provide more housing that people can afford. We are strengthening families by expanding child care facilities, raising child benefit, and making it easier to buy a home. In addition, I have significantly increased the budget allocations for security and order. Forward-looking, fair and responsible: this trio of principles guides our fiscal policy, including my draft budget and our financial plan to 2022. Federal Minister of Finance, Olaf Scholz

To lay the foundations for tomorrow’s prosperity, the German government is significantly raising its investment in the country’s future. A total of €151.6 billion in investment spending is planned for the four years from 2019 to 2022. This is a record high that adds €8.4 billion to the benchmark figure adopted in May 2018 and nearly €16 billion to the amount projected in last year’s financial plan. This means that investment levels will remain consistently high for the entire period covered by the new financial plan, at €37.9 billion per year. A particular focus will be placed on infrastructure, education, housing and digital technology.

Key benchmark figures:

 

Target*
2018

Draft Budget
2019

Financial plan

2020

2021

2022

 

– in €bn

Expenditure

343.6356.8363.2369.3375.5

year-on-year change in %

+3.9+3.8+1.8+1.7+1.7

Revenue

343.6356.8363.2369.3375.5

of this amount: tax revenue

321.3333.0333.8346.8359.7

Net borrowing

     
Investment**
(2018: excluding €2.4bn allocation to digital infrastructure fund)
37.437.937.937.937.9
Discrepancies may occur due to rounding.
* 2018: figures at the time of the Bundestag Budget Committee’s settlement session.
** No “unbundling” funds after 2019 (federal allocations to the Länder following the discontinuation of co-funding programmes in the areas of university construction, education, local transport and subsidised housing).

The German government also operates several special funds that will serve to stimulate further investment on top of the record-high investment levels contained in the budget and financial plan. These funds include the Energy and Climate Fund, a fund to promote investment by local authorities, a special relief fund established to remedy the damage caused by the June 2013 floods in Germany, and a special fund for digital infrastructure. In 2018, €2.4 billion will be paid into this digital infrastructure fund, which has been set up to finance billions of euros in investment in the coming years for the purpose of expanding and upgrading the broadband network and implementing the “digital compact for schools”.

In addition, a number of measures will be taken that are not categorised as investments in the budget but will play a crucial role in preparing Germany for the future and safeguarding the efficiency and viability of the German economy. This includes, in particular, expenditures on education, science and research, all of which comprise priority areas in the budget. In the years from 2019 to 2022, total spending on education and research will amount to €95 billion, including €23.7 billion in 2019. This is over €4 billion more in the coming four years than what was projected in last year’s financial plan.

The German government is taking steps to enhance social equity. A planned package of measures will help to ensure that everyone benefits from the current economic upswing:

  • More net pay for individual taxpayers: The government is giving a boost to disposable income, especially for low- and middle-income families. Both child benefit and the tax allowance for children will be increased starting in 2019. The income tax schedule is being adjusted to offset the effects of “bracket creep”. In addition, a total of €5.5 billion is being earmarked for the years from 2019 to 2022 to improve the quality of care in child care facilities and to create more cost-free care options. All-day schools will also be expanded, with a total of €2 billion being targeted toward this sector in the years up to 2022.

  • Socially responsible and active labour market policies: In 2019, roughly €1 billion in additional funds will be made available for training, job placement and labour market integration measures targeting the long-term unemployed. The Federation is also sending out an important signal by reducing the number of public service positions that are subject to fixed-term contracts for no substantive reason. In the future, no more than 2.5% of the people who work at authorities belonging directly to the federal administration are to be employed under contracts that have fixed terms for no substantive reason. At the same time, the Federation is adding a total of 1,760.5 new public service positions in 2018 and 2019.

  • More housing that people can afford: The German government plans to spend €1 billion per year in 2020 and 2021 on the construction of social housing, and an extra €500 million are being added to the roughly €1 billion already budgeted for 2019. In addition, a new grant is being introduced that aims to help families with children buy or build owner-occupied housing.

  • Good, future-proof pensions: The German government is improving benefits for pensioners while also taking steps to prepare the pension system’s finances for future challenges. Demographic trends will make it necessary for the Federation to increase its grants to the pension system. To prepare for this increase, starting in 2021, budgets will include an annual allocation of €2 billion to a reserve fund that will be set up to safeguard the pension system against demographic effects.

A fair fiscal policy must also ensure internal security and a well-ordered labour market while also upholding Germany’s commitment to fulfil its international responsibilities. This is precisely what the new draft budget and financial plan do.

  • Greater internal security, less undeclared work, strict minimum wage controls: Compared with last year’s financial plan, roughly €3 billion have been added to the Interior Ministry’s budget for internal security in 2019. Staffing will also be expanded substantially again in 2019 with the addition of about 3,100 new positions. The bulk of these new positions will go to the Federal Police and the Federal Criminal Police Office, and staffing at the customs administration will be increased again as well. The customs administration is responsible for combating undeclared work and monitoring compliance with minimum wage laws, and in this way it ensures equity and order on the German labour market. The customs administration will add 754.5 new positions in 2019 and take on over 3,000 newly trained customs officers starting in 2021.

  • Boosting development assistance and defence: The German government is also significantly increasing its funding for development cooperation and humanitarian aid. In 2019, the budget for the Federal Ministry for Economic Cooperation and Development will grow to approximately €9.7 billion. This is over €1 billion more than the amount projected in last year’s financial plan. The Foreign Office’s budget for humanitarian aid and crisis prevention is also being increased by €500 million over the amount slated in last year’s financial plan. In addition, Germany is raising its defence budget by €4 billion in 2019.

The German government is pursuing responsible fiscal policies and keeping its eye on longer-term trends. This means that periods of strong growth and high tax revenue will be used to finance expenditures without adding new debt and to reduce the debt ratio. The draft budget submitted by the federal government will make a major contribution to the reduction of Germany’s general government debt, which is expected to fall below 60% of GDP in 2019 for the first time in 17 years. This is responsible and intelligent budget policy that will create the fiscal space to meet future challenges and that will ease the burden on future generations.

With its draft federal budget for 2019 and its financial plan to 2022, the German government is improving the outlook for Germany’s future and enhancing social cohesion. These goals will be achieved without adding new debt.

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