The federal cabinet today adopted a draft supplementary budget for 2020 together with the legislation necessary to enact a supplementary budget (Nachtragshaushaltsgesetz 2020). With these new budgetary provisions, the government is launching a comprehensive package of measures to protect the health of the people living Germany as well as protecting employees and companies from the fallout of the coronavirus pandemic.
We are ready to do whatever it takes to protect the health of the people living in Germany, to protect jobs and businesses, and to protect our country. We are launching an unprecedented package of assistance measures to fight the crisis. The supplementary budget allows us to implement everything quickly and effectively and ensure that the money reaches those who need it now. We want to get past this crisis in good shape; together, we can achieve this.Finance Minister Olaf Scholz
With the supplementary budget, the German government is taking decisive action to combat the fallout from the coronavirus pandemic, in terms of the challenges it poses both to health and to the economy. The additional measures covered by the supplementary budget encompass total expenditure of approximately €122.5bn.
Nevertheless, it must be assumed that GDP will decline significantly this year due to the pandemic. For this reason, the German government is expecting that tax revenue will be lower, with an estimated shortfall of €33.5bn compared to the revenue originally expected when the 2020 budget was planned.
Thanks to the sound fiscal policy practised in recent years, the German government is now in a position to take decisive fiscal action. The pandemic confronts Germany with tremendous challenges. To cover the ensuing costs, Germany will have to borrow roughly €156bn, thereby exceeding the upper limit on borrowing stipulated by Germany’s constitutional debt rules by almost €100bn. However, the German government regards this as an unusual emergency situation that makes it necessary to exceed the limit on borrowing, in line with the sixth sentence of Article 115 (2) of the Basic Law (Grundgesetz). The final decision on this matter lies with the German Bundestag, where adoption of the budget changes will require approval by a majority of its members.
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Breakdown of the measures:
- €50bn will be made available to support small businesses and self-employed persons. These funds are intended as a bridge for self-employed persons, small traders and small businesses whose economic survival would otherwise be at risk.
- Furthermore, there will be a total increase of roughly €7.7bn in funding for unemployment benefit II (Arbeitslosengeld II) as well as the federal government’s contribution to housing costs and basic income support for older people. This will ensure a basic standard of living for groups such as the self-employed.
- In order to stem the spread of the virus, the federal government is making an additional €3.5 billion available for further measures including a) central procurement of personal protective equipment, b) funding for development of a vaccine and treatment, c) support services provided by the Federal Armed Forces, d) assistance for German and EU citizens abroad, and e) public outreach to keep the population informed.
- Furthermore, the supplementary budget also makes available another €55bn that can be drawn down at short notice to finance further measures to stem the pandemic. This will enable Germany to respond flexibly and at short notice to the further developments and consequences of the pandemic.
- The German government is also beefing up its provisions by around €5.9bn to cover any claims that may arise, in particular from the economic turmoil caused by the pandemic, in the area of guarantees and securities.
In addition, the German government has agreed to put up a protective shield for employees and businesses: This protective shield will, for example, allow for more flexible arrangements for compensating short-time work (Kurzarbeitergeld), tax measures such as optional deferments to improve liquidity for businesses, and new measures relating to the KfW and government guarantees. The government wants to ensure that the KfW has adequate funding for guarantee programmes; to do this, it will make the necessary guarantee volumes available to the KfW. The government has also made corresponding provisions for export guarantees. The supplementary budget increases the guarantee framework (roughly €465bn) by approximately €357bn, to around €822bn.
Further details on the supplementary budget are available here: Gesamtübersicht zum Nachtragshaushalt 2020 [pdf, 252KB] (in German)