The Greens argue the case for reforming Germany’s strict tax rules


Angela Merkel once described the temptation to take debt as a “sweet poison”. For the Greens of the opposition, the opposite is true: it is a potential remedy for Germany’s ills.

The Greens, voting at about 20 percent with three months to go before the federal elections, said that to modernize Germany and make coal neutral in 20 years, public investment must grow by 50 billion euros. the year in the next decade.

To achieve this, they want to review the “Debt brake”, the strict restriction on new loans enshrined in the German constitution in 2009 during the financial crisis.

“The pandemic has really exposed all the deficits we have in this country – particularly in digitization and public administration,” said Lisa Paus, green spokeswoman in financial policy. “It simply came to our notice then. That’s why after the crown we can’t go back to the old rules we had before. ”

Even before the pandemic, the Germans were fretting about the state of its infrastructure. The state-owned development bank KfW puts the country’s investment deficit – the money that municipalities urgently need to repair ruined bridges, schools and swimming pools – at 149 billion euros.

After the coronavirus crisis threw the deficiencies of Germany even more acute relief. People were shocked to discover their public health offices always communicated by fax. They were furious at the slow pace of Covid-19 vaccinations and the bureaucracy involved in getting an appointment.

The Greens have what they say is a simple solution to the investment gap: They want to limit Germany’s debt curb to consumer spending, when the government buys goods and services for current use, but exempts the expense. investment by the rule. Here, the party said, some new lending should be allowed for spending that creates new public assets.

The idea is that years of underinvestment have led to another type of debt – “debts that are not on the books but that jeopardize our prosperity,” as the Greens ’manifesto says. Kicking the can on the road, especially when it comes to weather, they say, will only lead to much higher costs, and more debt, in the future.

Polls show that a large proportion of voters like the idea of ​​higher state investments. It is also supported by some of the leading German economists. “It’s not like they came up with this new idea,” said Marcel Fratzscher, head of the German Institute for Economic Research in Berlin. “There is a broad consensus that an investment boost like this is needed.”

Others are skeptical. “The Greens’ plans are based on the idea that zero interest rates will persist, ”said Andreas Meyer-Schwickerath, Germany head of the economic think-tank OMFIF. “But what happens if they increase by 1-2 percent? You end up in a debt trap.”

The rule the Greens want to reform, which limits new businesses to 0.35 percent of gross domestic product, has been on hold for months. Finance Minister Olaf Scholz has suspended him as soon as the coronavirus crisis enters, a move that has allowed him to raise a record 370 billion euros of pandemic debt since 2020. Scholz recently announced borrow € 100 billion more in 2022.

Scholz, the center-left candidate of the center of the Social Democrats for chancellor, now wants to restore the debt brake in 2023, not in 2022 as originally planned, but has call refuse to make it all end.

In an interview with the Financial Times last month, he said the Greens were disillusioned because they knew there was no parliamentary majority to amend the constitution. Armin Laschet, the CDU’s center-right candidate for chancellor, is also opposed to any change.

Lisa Paus, the Greens’ spokesperson for financial policy, said it was time to rewrite Germany’s book of economic rules © imago images / photothek / Reuters

Paus, a trained economist, acknowledged that it will be a challenge to lower the debt brake from the constitution. “If that doesn’t work,” he said, “we need to consider other options – perhaps organize investments via KfW. [or] create a federal investment fund, support it with equity capital, and let it increase debt. ”

But this can only happen if EU tax rules are relaxed. This is also a green goal. “If the rules are too strict, and lack economic sense, and prevent them from doing what is politically necessary, they should be changed,” green co-leader Robert Habeck wrote in January.

The fiscal rules enshrined in the EU’s Stability and Growth Pact were in any case relaxed during the pandemic. But conservatives in the EU insist that the basic framework of the SGP, which limits debt to 60% of GDP and budget deficits to 3%, it cannot be changed.

Paus said that at a time when the average debt / GDP ratio in Europe is 90-100 per cent, there is a clear need for reform. “There is no point in being dogmatic about it and holding only with 3 to 60 percent,” he said.

The zeal for reform of the Greens does not stop there. They also have big plans for the € 750 billion EU coronavirus recovery fund, set up last year to help EU countries deal with the economic consequences of the pandemic.

The fund is controversial in Germany. Angela Merkel was able to sell the idea that the EU would raise common debts with its Christian Democrat partners by assuring them that it was unique. The Greens, on the other hand, want to transform the fund into a “permanent investment and stabilization tool” capable of investing in “important future-oriented sectors” of the economy.

Whether she will be able to implement any of her ideas is yet to be resolved. If the elections produce a Christian Democrat-green coalition, as many expect, conservative resistance to their reform plans will be fierce.

But Paus said the voting public is on his side, and that support for more generous investments is growing. “People in this country want a functioning state,” he said. “And they are frankly embarrassed by how far back Germany is.”

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