Armed Forces off-budget entity: Revised, but still risk-prone
Date 2022.11.11
With our report of 7 October 2022, we provided information to the parliamentary Budget Committee on considerable weaknesses regarding the draft budget prepared for the Armed Forces off-budget entity. As a reaction to that the Federal Ministry of Defence revised the draft budget. Nonetheless, the draft still shows weaknesses and risks. We elaborated on this issue in another report.
The credit authorisation for the Armed Forces off-budget entity amounts to €100 billion. The goal is to strengthen defence and alliance capacities and to close capability gaps within the Armed Forces. Large defence projects, especially complex multi-year projects, are to be financed.
Draft budget shows considerable weaknesses
In our first report to the Budget Committee, we flagged the issue that the draft budget was profoundly flawed – as the following examples may illustrate:
- Expected total expenditures of all projects planned and included in the draft budget exceeded the off-budget entity’s statutory financial framework of up to €100 billion.
- In planning its expenditure budget, the defence ministry failed to take into account expenditures to be incurred for making debt service payments due after 2024. A “cushion” to absorb soaring interest rates and a hike in procurement and development costs due to inflation had obviously also not been implemented.
- The various projects had not been linked to the respective expenditure and commitment appropriations in a binding manner. Aggregate titles did not meet statutory requirements applicable to the off-budget entity and remain opaque.
Revised draft still risk-prone
The defence ministry revised the draft budget, implementing some of our recommendations. The ministry, for example, intends to fund less projects via the off-budget entity than initially planned and to keep spending within the financial framework. Nonetheless, the draft continues to show weaknesses and risks, on which we elaborate in another report. In practical terms, particularly a hike in procurement and development costs and soaring interest rates could still lead to an undue overplanning under the off-budget entity – and thus to additional burdens on the federal budget.
Barring the massive €100 billion injection, the Armed Forces do not have unlimited spending power. We need clear priorities for effective Armed Forces."
We therefore believe that the defence ministry should be subject to a reporting obligation vis-à-vis the Budget Committee. This would allow the Budget Committee to have an eye on project funding activities under the off-budget entity and to identify and prevent any overplanning.