There are currently 29 special funds at the federal level. The oldest date back to the 1950s, the most recent were established last year. These include, for example, the €100 billion special fund for Germany’s Armed Forces and the €200 billion economic stabilisation fund in the wake of the energy crisis. In our current advisory report to the German Federal Ministry of Finance, we take a close look at the instrument of special funds.

Special funds are of considerable importance to the Federal Government's budgetary management. Their financial volume amounts to some €869 billion – for the currently existing larger special funds alone.

However, only about one tenth of the larger special funds are of value. The vast majority is loan-financed. The special funds’ potential for incurring debt totalled around €522 billion at the end of 2022. This is approximately five times the borrowing shown in the 2023-2027 financial planning period.

Consequently, special funds are, for the most part, either outsourced debt pots or they are dependent on the loan-financed federal budget. Overall, it is therefore more accurate to speak of "special debt" than of special funds. The actual net borrowing, including special funds, is hence significantly higher than the net borrowing shown in the federal budget.

Financing core government tasks from the core budget

The German Basic Law expressly provides for the possibility of establishing special funds (Article 110(1) Basic Law). However, due to their off-budget nature, special funds are an exception to the constitutionally determined budgetary principles of unity and universality of the budget. These principles protect above all the Parliament’s budgetary authority.

A restrictive standard should therefore be applied to the establishment and continuation of special funds as off-budget entities. Core tasks of the government should be financed from the core budget.

Federal Government plans to reduce special funds are insufficient

The off-budget expenditures incurred by the special funds and the equally off-budget financing through loans endanger the Parliament’s budgetary authority and the effectiveness of the debt rule. Existing special funds must therefore be evaluated at regularly intervals and their continuation must be well justified.

It is true that the Federal Government intends to reduce the number and financial scope of special funds. However, the plans presented by the government are far from being sufficient to eliminate the consequences of ‘gutting’ the federal budget. To this end, the large special funds, such as the Climate and Transformation Fund in particular, would have to be targeted.