"I realise that this Pact means huge new debts for our country,” declared Chancellor Angela Merkel, speaking in Berlin. "To do nothing, however, would plunge the country even deeper into crisis and debt,” she added.
The supplementary budget takes into account in particular the reduced tax revenues entailed by the Pact for Employment and Stability. It also calculates the additional 3.2 billion euros that the German government will now be contributing to the state health insurance scheme. Finally, it takes into account the impact on tax revenue of the modified tax exemption for travel to and from work, and of the changed conditions on the labour market.
Macroeconomic balance disturbed
The net borrowing of 36.8 billion euros is 8.1 billion euros higher than the investments provided for in the 2009 budget plan.
According to Article 115 of the German Basic Law, or constitution, net borrowing may only exceed investment where this is essential to prevent a macroeconomic imbalance. This is the case in 2009. Germany is experiencing one of the worst recessions in its history.
Special "Investment and Repayment Fund”
At today’s Cabinet meeting it was also decided to establish a special Investment and Repayment Fund, which will be part of the Pact for Employment and Stability. The federal government will make available a total of 16.9 billion euros through this fund for public investment projects and to strengthen research and the economy.
Of this sum four billion euros are earmarked for additional federal investment, while ten million euros will go to support additional investments of local authorities and federal states. These are joined by the programme to step up demand for automobiles (1.5 billion euros), the central innovation programme for medium-sized industry (900 million euros) and promoting research in the mobility sector (500 million euros).
The Investment and Repayment Fund is not part of the supplementary budget for 2009, since it does not involve any authorisation to borrow. In view of the package of measures contained in the supplementary budget and the Investment and Repayment Fund, it is safe to assume that the federal government will require to borrow between 45 and 50 billion euros in 209.
Overcoming the crisis rapidly
The goal of balancing the national budget has, however, by no means been abandoned. As soon as economic recovery kicks in, moves to consolidate the budget will be resumed with renewed vigour. "The more rapidly we overcome this crisis,” the more rapidly we can get on with repaying our debts, underscored the Chancellor.
A supplementary budget is a subsequent modification to a budget already adopted by parliament. Changes can be required if, for instance, government revenues fail to reach the levels forecast. They can also be needed if new spending becomes necessary or indeed if revenues are higher than originally expected.
