Sunday, November 8, 2015

Germany's stealthy budget surplus, the "black zero", is upsetting many

The German colloquial term for operating in the black is "schwarze Null", literally a "black zero", not considered hugely profitable but okay, often implying that the small profit is achieved under adverse circumstances.

Not widely reported outside of Germany, the federal government has managed to run a small surplus in 2014. 2015 brings a surplus, too, despite unexpected costs caused by the record influx of refugees.

The prospects and plans are very optimistic for 2016, according to the linked article in Handelsblatt and more recent news, in the view of the finance minster: "challenging but possible". Latest estimates forecast a smaller surplus than originally expected for 2916 but the government still believes to be able to cover the billions of euros for the refugee crisis out of the surplus.

Due to record tax revenues and cuts and savings ranging from "necessary" to "vicious", the Berlin government is proud.

Of course, no new debt does not mean that overall debt decreases - you understand if you have ever done minimum payments on your credit card.
At the state level, new debt is still being made, with only seven out of the sixteen states announcing that they will not borrow fresh cash in 2015.
Taxes at the state and local levels, mostly a generic "business tax" and real estate purchase (stamp duty) have continued to rise despite any "no tax hikes" pledges.

Some of the surplus revenue will go to raising the threshold of income tax free income (basic taxation threshold), some will go into raising the basic child allowance, but most of the surplus was "just sitting there" - at least as far as the general public could tell.

Running a surplus was not enough for some. As we wrote in Let no good crisis go to waste: the German refugee influx version, Pavlovian calls for tax hikes were voiced the very moment it became clear that government would need to make additional funds available to deal with the refugees.

The combination of those two facts - a surplus, yet a call for higher taxes - have upset all those who feel ignored by their elected representatives, further fueling support for the anti-immigrant movement PEGIDA and the populist right party AfD.

Statements like "why does a German who worked for 30 years get the same benefits as a refugee" were an easily refuted exaggeration until Germany's brutal HARTZ-IV means tested benefits regime was introduced about a decade ago.

Today, the difference between the benefits for refugees and the proverbial German veteran worker are small enough to worry some politicians. Instead of increasing support to Germany's poor, however, they called for reducing the benefits for refugees.

Expect more support for the populist right over real or perceived benefits.

[Update] Added "Taxes at the state and local levels..."

[Update 11/13/2015]  Germany's federal government just finalized the formal draft of the upcoming budget. As reported earlier, it projects a surplus for 2016 despite billions of additional spending on the refugee crisis. Some of the "smaller" expenditures in 2016 to 2018 budget show there is room for generosity, for example an extra 78 million Euros for farmers, and an increase of "cultural affairs" spending of 120 million.

[Update 1/13/2016] The official figures for the German federal government for 2015 are out: a surplus of 12 billion Euros, according to FAZ.

[Update 1/16/2016] Recent increased popularity of this post prompted us to add a link to Let no good crisis go to waste: the German refugee influx version for an overview of demands for more revenue.

[Update 7/2/2016] The federal spending figures for 2017 are out. Frankfurter Allgemeine Zeitung headlines the news with "More money for social expenditures and refugees, but the black zero remains". The Labor and Social Services Ministry budget is set to increase by 6.7%, with the major chunk of that money going to basic benefits for refugees and various integration measures, including "1 Euro jobs". While this is this the biggest increase in absolute terms, about 9 billion Euros, it is not in relative terms. Defense spending will go up by 7%, and Science and Education by 7.1%.

[Update 8/25/2017] Germany reports another record surplus of government revenue for the first quarter of 2017 with 18.3 billion Euros more coming in than spent at the federal, state, and local levels.
The surplus has gone from "stealthy" to a source of national pride, and it will certainly have an impact on the outcome of the national elections just four weeks from now.

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