Balanced Budget

Vague About True Cost of Refugees

refugees in Berlin_lageso_Michael Kappeler_dpa
Refugees standing in front of Berlin's registration center.
  • Why it matters

    Why it matters

    The German government is reluctant to discuss the true cost of integrating refugees.

  • Facts

    Facts

    • Finance minister Wolfgang Schäuble has prided himself in the past on making sure  government expenditure does not exceed income.
    • His famous balanced budget was thrown off kilter by the refugee crisis and he now forecasts that in 2016,  the government will spend €16 billion than it takes in.
    • Germany has received one million refugees in 2015.
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    Audio

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As finance minister, Wolfgang Schäuble, takes pride in keeping an eye on the details. But when it comes to the cost of registering, housing and integrating the one million refugees that are thought to have arrived in Germany this year alone. Mr. Schäuble is keeping things vague.

He told the German parliament his ministry is proceeding “with some caution” when it comes to budget planning over the issue.

There are government estimates over how many refugees can Germany expect in the coming years, and what are the estimated costs of coping with the refugee crisis, but these figures are are a tightly guarded secret.

Someone must have made the calculations, because Mr. Schäuble has to present the European Commission with a financial plan to confirm Germany is meeting European Union budget requirements. But the Stability Council which oversees the German government budget, wrote in a report that the projection submitted by Mr. Schäuble is difficult to evaluate, because “important information is not provided.”

That information, according to the council, includes data on the concrete impact of the projected influx of migrants and refugees on overall economic development and government finances, as well as the medium-term outlook for individual levels of the government. For instance, Mr. Schäuble has failed to specify whether he intends to balance the federal budget in 2017, an election year.

According to Hans-Werner Sinn, president of the Ifo Institute for Economic Research, integration is likely to be extremely difficult, because a large percentage of the migrants are from countries with a non-functioning education system.

The stability council is the supreme watchdog over German fiscal policy. Established in 2013, it monitors whether Germany is in compliance with EU budget requirements. All EU countries were required to establish comparable independent bodies in the course of the euro crisis. The German council consists of nine experts and is chaired by Mannheim economist Eckhard Janeba.

According to Mr. Schäuble’s financial projection, the government will spend €16 billion ($17.6 billion) more next year than it takes in. Of this total, €11.5 billion will be spent by the federal government, €3.5 billion by the German regional states, and about €1.5 billion to local governments. The projected government deficits for 2017 and 2018 are €11 billion and €4 billion, respectively. Mr. Schäuble’s experts do not expect to see surpluses again until 2019.

When the new projection is compared to the previous plan, there are differences of €10 billion and €13.5 billion in 2016 and 2017 for the total government, and €9 billion and €2 billion in 2018 and 2019. Much of this additional cost is likely attributable to the refugee crisis.

The report complains that “The federal government has not released the estimates included in the prognosis, which makes it difficult to evaluate,” adding “More comprehensive information would be desirable in this respect.”

Some assumptions about the consequences of migration were included in the projection, “but there are no details provided on how the influx of refugees and migrants was taken into account.” For instance, the council said, it is unclear which assumptions were made on the scope and speed of integration into the German labor market. According to Hans-Werner Sinn, president of the Ifo Institute for Economic Research, integration is likely to be “extremely difficult,” because a large percentage of the migrants are “from countries with a non-functioning education system.”

The stability council said that the current lack of certainty showed how important it is to maintain “buffers” to the upper limits of budget rules. It argued that this makes it possible to cope with unexpected costs without the need for last-minute cost-cutting programs.

Despite its criticism, the council believes the budget plans are “attainable, provided developments in refugee immigration do not veer significantly from the current assumptions in the relevant projections.” It said that it expects the government to abide by the upper limit for the structural deficit in 2015 and 2016, and that “a certain buffer” to the upper deficit limit of 0.5 percent of GDP is maintained.

 

Axel Schrinner writes about tax and finance policy for Handelsblatt. To contact the author: schrinner@handelsblatt.com

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