Financial Expert Raises Concerns Over Schwarz-Rot's Proposed Billions in Spending

The recent coalition negotiations between the black-red parties have led to discussions of significant new consumer spending, with estimates reaching as high as EUR80 billion. Financial analyst Tobias Hentze cautions that these proposals could strain the federal budget in the long term and urges politicians to adopt a more confrontational stance on fiscal issues.

In an interview, Hentze highlighted that the coalition's plans include a variety of economic measures, such as tax reductions and subsidies, which could diminish state revenues while simultaneously increasing expenditures. He pointed out that while some of these initiatives may be beneficial, they collectively represent a substantial financial commitment that could escalate the pressure on public finances.

Among the most notable financial implications are the proposed enhancements to the maternity pension, estimated to cost at least EUR4.5 billion annually. Additional expenditures include new incentives for electric vehicle purchases, projected to add EUR2 to EUR3 billion per year, and the implementation of a nationwide travel ticket costing around EUR3 billion. Moreover, the reintroduction of agricultural diesel tax refunds for farmers could result in hundreds of millions in lost revenue.

Hentze further noted that adjustments to the commuting allowance and the proposed increases in tax-free allowances for retirees would also contribute significantly to the financial burden, potentially costing the state an additional EUR4 billion. He mentioned that the plan to lower VAT for the hospitality sector could add another EUR4 billion to the fiscal challenges.

Considering the overall financial landscape, Hentze estimated that the total impact of these proposed expenditures and tax cuts could range between EUR60 and EUR80 billion, with nearly 40% of this amount falling on state and local governments. While the proposed loosening of the debt brake may provide some leeway for these entities, it does not signify immediate implementation of all these changes.

Hentze emphasized that without a clear strategy for financing these initiatives, the future of the federal budget may face increasing strain. He criticized the lack of ambitious consolidation efforts within the coalition and raised questions about how the parties intend to manage their fiscal responsibilities.

Addressing the notion of taxing the wealthy, Hentze pointed out that while corporate tax rates are already high in Germany, any further increases might stifle investment and economic growth. He urged that without curbing the growth of expenditures--particularly in social security and pensions--efforts towards tax reductions would be futile.

If the economy does not grow as anticipated, this could adversely affect state revenues, leading to a potential increase in national debt. Currently, Germany's debt-to-GDP ratio stands at 63%, but rising interest rates pose further complications, increasing the cost of servicing debt and limiting the government's fiscal flexibility. As interest rates for government bonds have risen to 2.5-3%, the pressure to maintain fiscal discipline intensifies.

Hentze concluded by calling for more willingness from politicians to confront these fiscal realities and make difficult decisions regarding subsidy cuts and other financial adjustments. The challenge remains how to balance necessary public investment with the imperative of maintaining a sustainable budget.