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Coins in a futuristic presentation sthe long-term pressure on the federal budget.

Federal budget: make long-term pressures transparent

Basic conditions to ensure sustainable public finances

Consultant report

In a report to the parliamentary Budget Committee, the German SAI states that the constitutional debt rule is the basis to ensure the sustainability of the public finances. However: Commitments entered into put considerable pressure on the federal budget which lacks flexibility. Furthermore, fiscal space will be further limited in the medium and long term. And this also limits the options of future generations to meet their own needs. Thus, the Government must take action to reverse this trend.

The public budgets are not flexible owing to a variety of commitments entered into. When the annual budget is prepared, the share of non-earmarked funds amounts to 10 per cent only.

Infographic: Substantial degree of inflexibility in government budgeting.

  • © Bundesrechnungshof

We expect budgetary inflexibility to increase in the medium and long term. As a result, Parliament’s and Government’s fiscal space will be further limited: This is primarily due to demographic challenges. In addition to that, the effects of the coronavirus pandemic and the war in Ukraine will put considerable pressure on the public budgets. All of these factors jeopardise the long-term sustainability of the public finances.

 

Maintain future generations’ ability to act

When preparing the annual budget, the Federal Government needs to provide the budget legislator with more information on long-term fiscal pressures and fiscal space to enable the legislator to take action against an increasing degree of budgetary inflexibility. In the case of relevant legislative proposals, in particular in the area of social security, the Government needs to inform the legislator about long-term fiscal pressures in a transparent and comprehensive manner prior to any legislative deliberation.

Our recommendation aims to maintain fiscal space for future parliaments and governments – and thus also the Government’s ability to act and the options of future generations to meet their own needs. Long-term sustainable public finances are key to achieving this aim. They boost the confidence in Germany’s financial soundness in the European Union and on the capital markets.

 

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Advisory report

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