Financial Market Experts Consider Bureaucracy Instead of Debt Brake as an Investment Hurdle
ResearchSpecial Question in ZEW Financial Market Survey
The debt brake, anchored in the German Basic Law, is increasingly being made responsible for hindering public investment and is thus being called into question. However, financial market experts do not see the debt brake as the main obstacle to higher investment, but rather the fact that there is too much bureaucracy. This is the result of a special question featured in the most recent ZEW Financial Market Survey conducted with 198 financial market experts. The survey was carried out by ZEW Mannheim in December 2019.
According to the experts from banks, insurances and large industrial companies, it is not so much financial bottlenecks which are responsible for weak public investments in Germany. Instead, bureaucratic hurdles rank far and away at the top of the list of obstacles perceived as being the main cause for investment weakness. Approximately half of the respondents also consider the capacity bottlenecks in the construction industry and political resistance from those affected to be decisive factors. By comparison, only a smaller share of experts named factors relating to financial bottlenecks, with the lack of public funding playing only a marginal role.
Almost none of the respondents think that investment capacity is limited by too little tax revenue, and only one third of the surveyed experts consider the debt brake to be an inhibiting factor. By contrast, competing budgetary spending such as on social benefits, personnel expenditure and other non-investment expenditure is perceived as a more significant obstacle on the financing side.
A mere reform of the debt brake would have little chance of success
There is also broad agreement among the survey participants that the constitutional debt brake should be preserved. The share of respondents arguing in favour and against reform is almost equal. In terms of reform options, the majority of experts advocate a stronger orientation of the debt brake towards investment.
Professor Friedrich Heinemann, head of the ZEW Research Department “Corporation Taxation and Public Finance” sums up the results of the survey: “The experts do not believe that the state lacks money for investment. In their view, the heated debate about the supposedly growth-inhibiting debt brake is missing the point. The actual shortcomings are to be found in the areas of bureaucracy, political acceptance of investment projects, and political preferences for consumptive government spending. A mere reform of the debt brake to include an investment clause would therefore have little chance of success without a further substantial reform of the investment conditions in Germany.”