New budget 'rides on economic wave'

When it comes to saving taxpayers' money, Chancellor Angela Merkel began by setting a good example herself: For 2013, the budget of her office is to decrease by 10 million euros ($12.8 million), compared to this year. And that is despite the fact that the chancellor's office is also to directly oversee the cultural affairs fund, which, amid everyone's applause, was bumped up by 100 million euros.

"See, this is how it's done," chimed the chancellor, together with her governing coalition of conservative CDU/CSU parties and the liberal FDP, referring to their "consolidation budget" which will allow Germany to already meet the requirements of the European fiscal pact by 2013.

"New structural debt" will then stand at 0.34 percent, which would be exactly 0.01 percent below the mutually agreed-on limit. This means that taking on new debt has decreased for the fifth year in a row.

Economic risks and extra expenditures, such as paying 8.7 billion euros ($11.1 billion) into the European financial rescue fund known as the European Stability Mechanism (ESM) are not included, but then, this is not required by the so-called 'debt brake' enshrined in the German constitution.

Still, there are risks: for example, although the government was strongly against it, a partial debt write-off for Greece could burden German taxpayers with up to 20 billion euros in additonal costs.

"A balanced budget within view"

But if all goes well, the federal budget deficit for 2013 is estimated to be around 17.1 billion euros, with overall spending of 302 billion euros. "One could say that a balanced budget is within sight, and consequently, we keep working at it," said CDU budget expert Norbert Barthle.

It was not without a tinge of jealousy that the opposition Social Democrats, Greens and Left party conceded that "the government [was] riding the economic wave." That's how the SPD budget expert Carsten Schneider phrased it, while, at the same time, accusing the government of helping itself to the social welfare funds to patch up the holes in the budget.

Although the allocations for the Ministries of Labor and Social Services of 120 billion euros still represent the biggest chunk of the overall 302-billion-euro budget, the funds are nevertheless 7 billion euros below the level of 2012.

A good performing German economy has allowed the government to cut back on its contributions to unemployment funds, retirement pensions and health insurance. "Precaution is a foreign word for the government," complained members of the Left Party, as it was already clear that any slow down in the economy would result in a financial shortfall for social services.

Interest burden only third highest expenditure

With regard to the second largest budget expenditure - servicing the federal deficit - the Merkel government has benefited from the low interest rates that Germany has to pay for loans on the international finance markets. As a result, the 2013 interest burden is going to be in the range of 33 billion euros, or more than 2.5 billion euros less than this year, pushing interest payments for the first time in years to third place on the list of budget expenditures.

The new second position belongs to the defense budget with more than 33 billion euros. The biggest reason for this is the revamping of the German armed forces, transforming them from a defensive structure into one that is tailored for active interventions, making it smaller, more sophisticated - and more expensive. A new weapons system, like the Eurofighter jet, costs one billion euros. Initially it was thought that the restructuring process would help save money.

A nearly billion-euro increase in the budget for education and scientific research has pleased both the governing parties and the opposition, while - in the face of rising electricity costs - criticism was voiced over tax cuts for large scale industrial consumers, allegedly an intervention by the government to retain the competitiveness of these businesses on the international market.

Trimmed development budget

One of the government branches that, in 2013, has to do with less money is, surprisingly, the Ministry of Development and International Cooperation. In a last-minute move, the federal budget committee sanctioned a cut of 140 million euros in funding earmarked for the European Development Fund but not tapped over the past couple of years.

Visibly angered, Development Minister Dirk Niebel noted that this meant the government had abandoned its own goal of increasing development spending to 0.7 percent of GDP.