Germany: Government presents 2013 budget
June 29, 2012
On 22 June, the government presented the draft budget for 2013 and the spending plan through 2016, a document that aims to continue stability-oriented policies and budget deficit reduction. According to the text, the government estimates that the fiscal deficit will reach EUR 32.1 billion this year, equivalent to 1.0% of GDP. In addition, officials expect to lower the deficit to EUR 18.8 billion in 2013, as government expenditures are expected to fall to EUR 302 billion in 2013 from EUR 313 billion this year. Moreover, as the country's public finances continue to profit from healthy economic growth, tax revenue is projected to reach EUR 260 billion next year, up from the EUR 252 billion earmarked for this year.
The document also shows that the structural deficit - which takes into account swings in the economic cycle - is expected to fall from 0.86% of GDP this year to 0.35% of GDP in 2013, which means that the country would meet the deficit goal under its debt limitation bill three years ahead of schedule. The budget bill still must pass both houses of Parliament in November. Meanwhile, in the spending plan through 2016, the government stated that it expects to cut the deficit to EUR 13.1 billion in 2014 and to EUR 4.7 billion in 2015, before balancing the budget in 2016, a requirement that was established in the constitution in 2009.
Simultaneously, as part of the comprehensive measures that have been taken in order to stabilise the Euro area, on 29 June, Germany's parliament approved legislation regarding the fiscal compact and the European Stability Mechanism (ESM), the European Union's permanent bailout mechanism. Germany will contribute around EUR 22 billion in paid-in capital and EUR 168 billion in callable capital to the ESM. However, after the strong backing from parliament to the permanent bailout fund, members of the parliamentary opposition asked the Federal Constitutional Court for an injunction, which if issued, could further delay the ratification of the ESM for several months. The court will make a final decision on 10 July. Meanwhile, President Joachim Gauck will not sign the bill into law until the court gives its go-ahead.
Author: Ricardo Aceves, Senior Economist