2024 Funding Gap Plans - Fiscal Drag Potentially Smaller Than Expected

The German government published a catalogue of measures to fill its 2024 funding gap of about E17bln on Tuesday. There still seems to be considerable uncertainty within the government on the budget impact of some of the measures considered. But overall the use of measures outside of direct expenditure cutting/revenue raising suggests that the fiscal drag in 2024 might be much smaller than implied by the E17bln figure.

• Alongside the measures already announced before, the government draws on a multitude of privatization measures, forecast updates, reclassifications, and smaller cuts to close the remaining gap:
  • Up to E7bln: financial transactions re the national rail provider Deutsche Bahn (privatization of logistics unit DB Schenker planned, among others)
  • E3.2bln: usage of off-balance sheet items not affected by the recent constitutional court judgement
  • E2.3bln: update of a prior interest rate expenditure forecast
  • E1.5bln: reimbursement of funds previously paid to the Federal Employment Agency
  • E1.4bln: refinancing the EU plastics levy which is currently paid by the national state
  • E1.3bln: CO2 price increase
  • E1.0bln: measures regarding social benefits
• Alongside these, the government is planning to decrease the budget of multiple federal ministries. This could include subsidy cuts to the solar industry (E1.3bln est. impact) and electric cars (E1.3bln est. impact), though those weren't explicitly mentioned.
• Finally, the government seems to be considering suspending the debt brake in 2024 solely for a E2.7bln financing of rebuilding measures re damages from a 2021 flooding in two states. It is planning talks with opposition group CDU/CSU accordingly.