“We urgently need a new growth agenda for our country,” FDP politician Christian Lindner said in Berlin on Wednesday, referring to a report on the sustainability of public finances. What is needed is an “economic turn” towards more dynamism and competitiveness so that the State has sufficient resources in the coming years to fulfill its tasks and be able to guarantee social security.
The Ministry of Finance presented the sixth sustainability report to the federal Cabinet on Wednesday. The report is prepared by the Ministry of Finance once per legislature based on the opinion of external scientists and is considered an early warning system: it shows the consequences that the aging of society has on state finances. The model calculations are purely hypothetical and assume that the policy will not change.
In new report, Lindner sounds alarm on debt
The current report is a call to action, Lindner said. “Our society is changing. We grow old. We have lower potential growth than in the past. And that contributes to a deterioration in the long-term economic prospects of our country.” Public finances must be established in a sustainable way. You shouldn't just look for debt opportunities. “But we have to shift to a mode where everything is focused on generating wealth again.”
The report also highlights the importance of the debt brake. According to the projection, the debt ratio – without assuming compliance with the debt brake – could increase to 345 percent of GDP in 2070 in the worst case. Instead of shifting burdens to the future, structural reforms are needed in the field of social security, the minister said. “We cannot expect more and more from the State, nor more and more from the welfare State, but we have to focus on the priorities that are really necessary and, therefore, can be financed in the long term.”
As was already known last week, according to the report, demographic spending, for example on pensions, health, care and family, could increase from the current 27.3 percent of economic output to 36.1 percent under unfavorable conditions. The “sustainability gap” determined for 2070 is 1.6 percent of economic output under favorable assumptions, and 4.7 percent under a pessimistic scenario. Compared to the current gross domestic product, the State would have to spend between 66,000 and 194,000 million euros less or earn more.