Questionable Financing: Federal Government Can Save Billions – Here's the Experts' Crosslist

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The federal government wants to distribute almost 50 billion euros in funds this year. It is often based on the watering can principle; partly for projects it cannot support. Experts have plenty of suggestions for using money more wisely.

Many people in Germany only need to visit the nearest gym to understand why so many experts criticize the federal government's financing policy: Under the federal system of the Federal Republic, the federal government is responsible for important tasks such as security, foreign policy and equivalence. Municipalities are responsible for the construction of gyms. However, the federal government recently subsidized gym renovations with millions of euros. The funding shower also rained on gardeners, music festivals and municipal utility fleets.

This approach puts pressure on the cash-strapped budget:

  • As the federal government desperately seeks money to keep Germany competitive as a business location, it will pay 48.7 billion euros in financial aid in 2024, double what it did three years earlier in 2021.
  • In addition, there are 18.4 billion in tax reductions, which roughly corresponds to the values ​​​​of previous years.

A total of 67.1 billion euros, which has sparked a debate about the need for these subsidies.

FOCUS online has compiled voices from economic experts on what funding programs they think make sense and where they would cut.

1. Marcel Fratzscher, president of the DIW: Too much money in a watering can

“In principle, it makes sense to have support programs for the company's location. It is usually much better if the State provides funding on a specific and individual basis. In the past, the state has too often distributed money through watering cans; An example is the price cap for electricity and gas.

“The state needs to continually review its funding programs and stop programs that are no longer targeted or up to date.”

More funding for climate and social issues

“Above all, the sustainability of financing programs and their impact on the climate and environment must be examined. Too high subsidies continue to be provided, implicitly and explicitly, for climate-damaging energies.

Furthermore, more attention should be paid to the social aspect of financing programs. Greater social acceptance needs to be created, especially when it comes to climate protection and economic transformation. Therefore, the promised introduction of a climate protection law would be important and necessary.”

2. Christian Rusche (Institute of German Economics): Market distortions and unjustified spending

“Economics is the study of the management of scarce resources. Consequently, each euro earned can only be spent once. In times of zero or negative interest rates and rising tax revenues, this connection seems to have been forgotten in politics.”

Debt burdens future generations

“With real interest rates now positive and a stagnant economy, every euro that has to be borrowed hurts because it creates burdens for future generations. This is especially true in the context of a financial deficit of 87.4 billion euros, despite record state revenues of 1.902 billion euros in 2023. These expenses therefore require justification.

Subsidies also generate market distortions because they cause actors to make different decisions than they would without them. An example of this is the drop in demand for electric cars following the (sudden) expiration of government funding.”

Subsidies only for special cases

“Subsidies are not negative per se, but they require their own justification as to why scarce financial resources should be used for them. The maintenance of public order, the risk of disruptions in trade in urgently needed goods, or the long-term security of human capital and knowledge are possible justifications.

Supporting the necessary structural change also requires government support. However, subsidies should be limited to actual additional costs, as is the case with climate protection agreements. But in general, when all financial resources are used, the question must be taken into account whether this is really the best use of this scarce euro.”

3. University of Europe: lights and shadows of plans

An analysis by the European University of Applied Sciences (EU) based on the 29th federal subsidy report shows what the federal government does right and wrong according to experts' demands:

  • Important: At around 19 billion, subsidies for energy renovation and heating conversion are by far the largest single item of all subsidies. As experts demand, they help the climate. Since 2022, these expenses have increased almost fivefold. Increased funding definitely helps climate change.
  • Gray area: The second most important individual item is allocated to the promotion of microelectronics, with around four billion euros.
  • Savings Opportunity: “Subsidies to companies that consume a lot of electricity to compensate for increases in the price of electricity caused by emissions trading” are the third largest individual item, with around three billion euros. As DIW head Fratzscher has repeatedly criticized, they tend to freeze the restructuring of the climate-friendly economy and harm climate goals instead of serving them.

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