The German federal government is accused of having misused 95 percent of the special fund. Economist Florian Schuster-Johnson considers this figure untenable, arguing that the actual problem lies elsewhere.
Mr. Schuster-Johnson, the government is accused of misusing billions in debt, which was explicitly designated for additional investments. The government denies this. What’s your take on these accusations?
FLORIAN SCHUSTER-JOHNSON: I find the emphatic claim of 95 percent “misappropriation” to be polemical. Yes, it’s true: a portion of the funds from the fiscal package – which includes not only the special fund but also the exemption of defense spending from the debt brake – was used to close budget gaps. However, both the 95 percent figure and the term “misappropriation” are problematic.
Why is that problematic?
The underlying study methodologically overlooks crucial aspects. Take the Climate and Transformation Fund (KTF) as an example: In the old financial planning, there was a gap of almost ten billion euros, despite investments being planned. The study assumes that the investment path of previous years would simply have continued. Realistically, without the allocation from the special fund, a large portion of these investments would have had to be cut. Therefore, to claim these weren’t additional is unsustainable.
Furthermore, there’s the reduction of investments in the core budget. However, this is a special effect because the 2025 federal budget was only approved in September, leaving effectively just three months. It’s understandable that around seven billion euros couldn’t be disbursed in such a short period. The Ifo study itself states that, starting from 2026, the alleged misappropriation rate will be significantly lower because the budget will then apply for the entire year, and fund disbursement will function better. Nevertheless, the 95 percent figure is communicated – which I find questionable.
What scale are we talking about?
In the last year, during the three months it was active, the special fund raised approximately 24 billion euros in loans. Of this, about ten billion went to the KTF specifically to close its funding gap, enabling planned investments that otherwise wouldn’t have occurred. The remaining nearly 14 billion were almost entirely used for investments from the special fund, as shown in the budget accounts. In short: Yes, there was limited gap-filling, but there’s no question of massive misappropriation.
It’s undisputed that a significant portion of this debt will also be used to fill budget gaps in the coming years. Should politicians, when deciding on this special fund, not have been honest from the outset that this would be the case and that these gaps couldn’t be closed otherwise?
Yes, that was always part of the truth. The crucial point in the coalition negotiations was when the Ministry of Finance presented the budget figures to the CDU/CSU and SPD. It then became clear to everyone in the CDU/CSU that they had to act. The motivation from the beginning was to keep the budget under control by crafting this fiscal package. Within the framework of the package, the criterion of additionality for investments was set such that an investment quota of ten percent in the core budget must be maintained. If the government now formally argues that this is the meaning of additionality and they adhere to it, they are correct.
However, that’s not what most economists and citizens understand by “additional.”
There is no fixed concept for “additionality.” For studies, depending on the objective, countless different standards can be chosen to calculate additionality. If I want to show that the government is performing poorly or if I want to defend it, I can always find a standard that supports my viewpoint. Therefore, the debate about additionality is fundamentally misguided. It distracts from the real problems and is only used to either criticize or defend the government.
Where do these real problems lie? Why can the government no longer manage without these special funds for borrowing? The approach might be legal, but it still has the whiff of trickery.
The government faces a huge budget deficit of up to 70 billion euros per year in this legislative period. Fundamentally, there are two ways to close this gap: raise taxes or make severe cuts. Tax increases are politically difficult; the coalition has recently announced tax cuts, quite the opposite. So, savings remain. However, that’s easier said than done. A large part of the budget is legally bound and cannot be changed in the short term. Federal subsidies for pensions, for example, cannot simply be cut, as claims stand behind them. For basic income, the Federal Constitutional Court has protected the subsistence minimum, so cuts below that are not possible. Interest expenses are contractual obligations; the state cannot refuse them. Added to this are personnel costs, defense, and so on. In total, about 85 percent of the budget is fixed. The budget is thus increasingly rigid, while problems are pressing: a weak economy, demographics, pressure on social security systems. This no longer adds up. Therefore, politicians resort to makeshift constructions like special funds to create short-term leeway. This is also the case with the fiscal package and the special fund.
Isn’t the core of the problem the strict limitation on borrowing in the budget imposed by the debt brake?
It’s partly about the debt brake and partly about the unwillingness to raise taxes. We now have to spend an enormous amount on defense, and we have invested too little for a long time. If we want to do better in the future, we must honestly state: the federal budget is insufficiently financed on the revenue side.
Concurrently with the financial package last year, the coalition decided on tax cuts and additional, significant expenditures with the “Mütterrente” (mother’s pension). Is this what bothers many critics the most? That they’re playing tricks with borrowing while simultaneously exacerbating the problem with electoral gifts?
Correct, the coalition decided on a series of tax reliefs – such as the reduced VAT for gastronomy, agricultural diesel, the commuter allowance – and on top of that, new expenditures. Besides the “Mütterrente,” in my view, the maintenance line for the pension level of 48 percent weighs even more heavily. This has deliberately further narrowed the fiscal leeway. The government inherited a problem but is making it even worse itself.
You have made projections for the coming years. With the result that this problem will worsen. Does this mean that discussions about the misappropriation of special funds will be the rule rather than the exception in the future?
We have created a projection of how the budget will develop until the mid-2030s: It will get worse, particularly due to current government policy. On the one hand, we are reducing tax revenues through various reliefs, and on the other hand, legally bound expenditures are increasing, mainly due to the pension package and significantly higher interest expenses.
How do we get out of this situation? Simply with a rigorous austerity course?
Massive savings cannot be achieved in the short term. Budget consolidation requires a long breath – it won’t work in one year and probably not in this legislative period either. Over ten years, however, a lot can be achieved.
What needs to happen?
First: Reforms in the welfare state, especially for tax-financed benefits like basic citizen’s income (“Bürgergeld”) and housing benefits (“Wohngeld”), and in the pension system. More flexible retirement ages, better earning rules – anything that encourages people to work more and earn more will relieve the federal budget. Good proposals are on the table; hopefully, the government will take them up. But these will only pay off over several years, not immediately. Second: More efficient subsidies in the climate and energy sector – for example, for building subsidies, grid fees, and energy price subsidies. A few billions can be saved there, also with a delay. The bottom line is: A lot can be done in the budget, but it won’t be enough. We need to talk about tax increases – at the latest, when the exemption for defense spending ends and soldiers’ salaries and pensions are again regularly included in the budget. Financing this permanently on credit is not a solution. Without additional revenue, it will hardly be possible. The task is to design this in a way that doesn’t stifle the economy. I don’t have the perfect solution.
What does it mean for a democracy when fiscal policy can no longer be shaped politically? This lack of transparency and the current debate about the misappropriation of billions in debt further contribute to fundamentally eroding trust in politics.
Fiscal policy thrives on transparency and comprehensibility. We currently lack both. The debt brake, as it is structured, offers no incentive for substantive debate: It merely defines a number behind which one can hide. If the government cannot cope with this construct, it resorts to artifices, and in the end, hardly anyone understands what the Federal Minister of Finance is doing. The second problem: a government without financial maneuverability – because it cannot reallocate funds or provide resources in the short term – cannot implement its program. Elections then become largely meaningless, at least in terms of fiscal policy. This is highly problematic.
