The fat years are over


Since 2014, the German finance ministers have always been able to report budget surpluses. Over the past six years, the total federal budget has accumulated more than 200 billion euros, which could be used to pay off debts or flowed into the reserves for overcoming the refugee crisis. But this is now over, as the current tax estimate makes clear at the latest.

This year alone, the national budget will be short of around 100 billion euros in tax revenues compared with the forecasts from the pre-Corona period. At the same time, there will be high additional expenditures for crisis management. So in 2020 Germany will have high deficits at all levels of government and will probably have to incur significantly more new debt in just one year than it was able to save up in the six years before.

The new debts are unavoidable and no attempt should be made to save up against them. Economists speak of "automatic stabilizers," which in good times prevent the economy from overheating, but in bad times can at least cushion the slump. These include pro-cyclical taxes such as income and trade tax, but also unemployment and short-time work benefits. In addition, stimulus measures in the form of a stimulus package will certainly be added, which should support the "rebound" of the economy after the lockdown.

Tax increases, or even just their announcement, would be absolutely counterproductive at this time. Fortunately, the German government can - even in times of crisis - rely on being able to refinance itself on the capital market at all times. At present, by the way, at exceptionally favourable conditions.

However, it should not be forgotten that debt always represents a mortgage for the future and must be refinanced and repaid by future generations. Interest rates will not remain as low as they are now forever. In this respect, the rule of thumb is to keep a low profile even during a recession, and to examine additional expenditure to see what benefits it can bring in combating the crisis and in the longer term.

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