“The Traffic Light Coalition Is Facing a Budgetary Mess”

The Federal Constitutional Court has issued its verdict on the 2021 supplementary budget, declaring it null and void. With this supplementary budget, the current federal government had transferred loans totalling 60 billion euros to the Climate and Transformation Fund at the beginning of its term of office. The conservative opposition party, CDU/CSU, brought the lawsuit, arguing, among other points, that this reallocation violated the debt brake provisions. Professor Friedrich Heinemann, head of the Research Unit “Corporate Taxation and Public Finance” at ZEW Mannheim and professor at Heidelberg University, explains:

“This ruling is to be welcomed from the perspective of transparent fiscal policy. The move away from core budgets at the federal and state levels was a misguided development that has made democratic control of budgets more difficult. The attempt to exploit a short-term crisis – the pandemic – for a longer-term debt option has now failed. The clear message from Karlsruhe is that politicians cannot simply declare an alleged permanent crisis to circumvent the debt brake. The traffic light coalition is now in a budgetary mess of its own making. The timing of the ruling in the midst of crucial negotiations for the 2024 federal budget is opportune. At a time when the coalition was even considering new subsidies for the hospitality sector, it must now rethink how it can actually finance its ambitious climate policy. There is no reason for the CDU to gloat. Just like the Social Democratic government in Saarbrücken, the CDU, at the state level in North Rhine-Westphalia and Berlin, has launched special funds that, according to today’s verdict, also clearly violate the Basic Law – only there has not yet been a plaintiff. It is time for German financial policy at all levels to respect the constitution again. Surely, the debate on a reform of the debt brake will now intensify. Reforming the debt brake with new clearly defined windows for debt would be a better approach than constantly testing the constitutional gray area of the debt brake.”