Cabinet Approves 2003 Budget
June 19, 2002
German Finance Minister Hans Eichel has an ambitious goal. In four years time, he wants to present Germany's first balanced budget since 1970.
On Wednesday, Eichel (photo) made some progress towards that goal, when the cabinet approved his draft budget for 2003. According to the finance minister's draft, spending will decrease by 0.5 percent to 246.3 billion euro ($234.5 billion) and new borrowing will be cut from 21 billion euro ($20 billion) this year to 15.5 billion euro ($14.75 billion) in 2003.
Promises to balance the budget
Chancellor Schröder's government has made cutting spending one of its top priorities. It doesn't want to burden future generations with high interest payments on old debts.
In addition, Schröder's government narrowly avoided an EU warning about its high budget deficit in February. Last year, Germany's deficit rose to 2.6 percent of gross domestic product (GDP). That's dangerously close to the three percent EU limit that ensures the stability of the euro.
The German government was only able to avoid an embarrassing EU rebuke by promising to bring the country's budget close to balance. But economists and Germany's conservative opposition immediately criticized the finance minister's pledge as unrealistic.
Hans Eichel's reduced budget for 2003
The biggest single item in Eichel's draft for 2003 is the labor minister's budget. It will increase by 1.3 percent in 2003 to 93.4 billion euro ($88.9 billion) because of Germany's high jobless rate. Around four million people are out of work in Germany. The finance minister's draft is based on the assumption that the number of unemployed will go down to 3.8 million next year. More people working would mean more people paying taxes, and therefore higher revenues and less spending on unemployment.
The second biggest chunk of the budget – though considerably smaller than that of the labor ministry - will go to the Federal Ministry of Transport, Building and Housing. At 26.4 billion euro ($25 billion), it remains roughly unchanged from this year.
The defense budget is the third-biggest item of the draft. It's set to increase in by 3.3 percent in 2003. According to the finance minister's planning, the defense minister will have 23.4 billion euro ($23.2 billion) to spend next year.
Government approves 2003 draft budget
On Wednesday, Eichel had no problems getting the other government ministers to approve his draft budget for 2003. However this was only one small step on a long rocky road for Eichel. The draft still has to be approved by parliament, which is set to debate the budget plan after the September elections. By then, Eichel may no longer be in office.
Recent polls show Schröder's government coalition trailing behind his conservative opponent Edmund Stoiber (photo). Germany's conservative opposition has already made clear that it will thoroughly rework Hans Eichel's budget plan in case of an election victory.
Opposition is critical
The conservatives criticized that Eichel's draft budget was based on wrong assumptions. Dietrich Austermann, a budget expert with the Christian Democrats, said it was risky to assume GDP would grow by 2.5 percent. If it failed to reach that target, important cornerstones of the budget would not be met.
Austermann said that if the conservatives win the September election, they will cut spending even more. They want to introduce more flexibility in the German labor market and they plan to reform the country's pensions system. Austermann also announced the conservatives would save money by cutting back subsidies for what he called "pet projects" of the present government – ecological farming for instance.
But some economists say the conservatives' plans for reforming the country's finances are just as vague as those of the present government. Stoiber, the opposition candidate for chancellor, announced ambitious economic plans and projects a few weeks ago. When journalists asked how he would finance them, however, Stoiber's answer was simply through the economic upswing that his government would bring about.