Why it matters: Germany has neglected military spending for too long.
Despite intense pressure from the United States, Germany last spent 2% of its gross domestic product (GDP) on defense in 1991, a year after the reunification of former East and West Germany, according to World Bank figures.
However, the government’s refusal to significantly increase its €1.7bn increase in military budget to €51.8bn, instead opting to appropriate €19.2bn from a special fund announced after Russia’s invasion of Ukraine Some argue that it only provides a temporary budget. boost.
At the same time, the severity of cuts in social services has sparked sharp criticism from economists, trade unionists and welfare providers. The budget included cuts to programs to help alleviate child poverty, as well as a drastic cut in the permissible annual income for new parents to qualify for government-paid parental leave.
Marcel Flattscher, head of the German Economic Research Institute, said the budget was “economically unwise, anti-social and non-strategic”. He accused Germany of neglecting investments in areas it claims will make Germany more competitive globally, such as digitization, green infrastructure and education.
Background: Public loathing of debt and taxes.
Germany has been debt averse for decades and in 2009 introduced a constitutional “debt brake” that calls for a nearly balanced state budget. Governments are allowed to break it only in times of crisis, like in early 2020.
At the same time, Lindner has refused to consider raising taxes on the wealthy or changing the tax system to attract foreign investment.
The US uses incentives such as tax cuts to attract companies in the green energy and technology sectors. Germany’s leading businessmen are calling for similar measures to maintain the country’s status as an industrial hub.
“Germany is increasingly lagging behind in investment and location decisions,” said Tanya Gönner, general director of the Federation of German Industries. “Germany’s tax framework is not competitive.”
What’s next: Congress must approve the budget.
The budget still needs to be debated in parliament. Voting is expected to take place by the end of the year.
