Bah, humbug

Scholz’s first budget proposal criticized from all sides

Germany’s Finance Minister Olaf Scholz Presents Budget Outlook
No one else in the room is smiling, Mr. Scholz. Source: Bloomberg

German Finance Minister Olaf Scholz drew a barrage of criticism on Wednesday after unveiling a 2018 budget and future financial planning that appears to cut government spending – despite a budget surplus. Mr. Scholz’s figures showed a cut in Germany’s investment spending to €33.5 billion in 2022 from €37.9 billion this year.

“The projected decrease in federal investment spending over the planning period is economically mistaken and politically fatal,” said Michael Hüther, director of the business-affiliated Cologne Institute for Economic Research. “There is an urgent need for a change of direction in the federal budget, including tax cuts.”

The new budget was surprising because it ignored calls for the government to use the surplus to upgrade ailing infrastructure, and to meet NATO commitments to increase defense spending. Defense Minister Ursula von der Leyen only assented to the budget because of a promise to increase spending in the future. She wanted €12 billion more from 2019 to 2021, but got only €2.5 billion.

The shortfall is insufficient to fund joint weapons development projects, such as a submarine with Norway and a helicopter with France, and also runs contrary to Germany’s pledge to raise defense spending to 2 percent of GDP by 2024. Under Mr. Scholz’s plan that ratio would sink to 1.23 percent by 2022 from about 1.3 percent now.

Germany Syria
Ms. von der Leyen has thoughts on the new defense budget – none of them good. Source: AP

The budget for the transport ministry – which covers not only highway, rail and waterway projects but also construction of high-speed internet – is scheduled to decline by €200 million in 2019, even though the ministry will double its revenue from trucking tolls to €3.5 billion. The ministry has been plagued by long approval procedures for its projects that often prevent it from spending its full investment budget.

Mr. Scholz countered the criticism by saying that some €6 billion in investments weren’t included in the projections and other projects have been handed over to the states.

“The current budget proposal isn’t in line with my understanding of politics,” said Hilde Mattheis, a member of the Social Democrats, the party of Mr. Scholz.

After his less than charismatic debut on the international stage last week, the former mayor of Hamburg seemed to cling to the same stingy practices as his predecessor, Wolfgang Schäuble. Both politicians clung to a balanced budget, known colloquially in German as a “black zero.”

Several Handelsblatt reporters contributed to this report. Darrell Delamaide adapted it into English for Handelsblatt Global. To contact the author: d.delamaide@extern.handelsblatt.com.

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!