German government OKs plan for balanced 2014 budget

No new borrowing from 2015.

BERLIN – Germany’s Cabinet approved a draft budget proposal Wednesday that foresees the government getting by without new borrowing from 2015 — a plan hailed by the finance minister as a “strong signal” for the rest of the Europe that comes as the country prepares for elections in September.

The draft foresees what the government says is a structurally balanced budget next year, with net new borrowing of €6.4 billion ($8.4 billion) — down from €17.1 billion in 2013. Net new borrowing is supposed to sink to zero in 2015, a year earlier than previously planned, and in subsequent years.

Total spending is set to sink to €296.9 billion next year, a 1.7 per cent decline from this year’s level of €302 billion. The government’s tax income is seen rising from €260.6 billion this year to €269 billion in 2014, and continuing to increase over the following years.

Chancellor Angela Merkel’s centre-right coalition has pushed hard for other countries in the 17-nation euro area to tackle their budget deficits and debt piles, and says it’s wants to set a good example itself. Unlike many of those countries, Germany’s economy has continued to grow over recent years and the government has seen healthy increases in tax income.

Germany’s budget plans “prove that consistent, sustainable budgeting and growth are not mutually exclusive,” Finance Minister Wolfgang Schaeuble told reporters. “That is a strong signal for Europe as well, which is why it was important for us to approve them today — before the European summit” which starts on Thursday.

Merkel’s government has been criticized abroad, and by the centre-left opposition at home, for placing too much emphasis on austerity as a cure for other European countries’ debt troubles.

But Merkel’s crisis response has generally played well in Germany, and the chancellor’s centre-right coalition is keen to polish its credentials as a guarantor of solid finances ahead of Sept. 22 elections in which Merkel will seek a third term.

Vice-Chancellor Philipp Roesler, who is also the economy minister, said the government’s approach “stands in clear contrast” to that of the opposition, arguing that the states the opposition govern are running up new debts.

Opposition politicians criticized a move to cut a subsidy to a fund that underpins the public health-insurance system and argued that the plans make over-optimistic assumptions, among other things, about interest rate payments.

The government’s plan is “window dressing,” said Priska Hinz, a prominent lawmaker with the opposition Greens. “Alongside sleight of hand, the plundering of social insurance and economic effects, the government is making no contributions of its own to consolidation.”