Government Restructures 2024 Budget Cuts, Further Limiting Fiscal Impact

The German government on Thursday announced E2.5bln of changes to its plans to close a 2024 funding gap of around E17bln related to the constitutional court ruling against repurposing Covid funds. The new measures will marginally reduce the fiscal impact of the funding gap as the government retracted some measures hitting the agricultural industry, and made up for this mostly through either a repurpose of funds or simply updated projections.

• Also, the government maintained its expectation that the 2024 final budget would be passed on February 2nd. Until that time, provisional budget management applies, which has not been uncommon in recent years.

Details on the changes to the cuts below:

• The government will no longer eliminate tax exemptions for agricultural vehicles, and will slow the end of subsidies on agricultural diesel. These are concessions to the agricultural industry after large protests by farmers last month fostered criticism of the measures by some members of the coalition parties.
• Also, the refinancing of the EU plastics levy will be postponed from a likely start in 2024 to January 2025, and the privatization measures considering the national rail provider (sale of DB Schenker) are now estimated to bring in E5.5bln in 2024 instead of up to E7bln.
• The government plans to offset the E2.5bln hit to the budget represented by these changes via broader usage of proceeds related to offshore electricity generation in the federal budget (+E780mln), further savings in the ministry of Food and Agriculture (+E100mln), and new projections of economic and budgetary data.
• Measures and forecast updates which were not changedinclude the usage of off-balance sheet items that are unaffected by the recent constitutional court judgement (closing E3.2bln of the funding gap), an update of a prior interest rate expenditure forecast (E2.3bln), the reimbursement of funds previously paid to the Federal Employment Agency (E1.5bln), a CO2 price increase (E1.3bln), and measures regarding social benefits (E1.0bln).
• Putting this into perspective, the government seems to have found some additional room to limit the fiscal impact of the budget gap and used this to retract some of the measures most criticized.