German government faces broad backlash for budget cuts

11 months ago 36

The German government has been heavily criticised for announcing a mix of spending cuts and tax rises to fill the €60 billion hole in the country’s “climate and transformation fund” left by a constitutional court ruling.

On Wednesday, German Chancellor Olaf Scholz (SPD/S&D), Vice-Chancellor Robert Habeck (Greens), and Finance Minister Christian Lindner (FDP/Renew) announced cuts totalling €45 billion from the climate and transformation fund, affecting the years 2024 to 2027.

As some of this will be replaced with money from the regular budget, a hole of €17 billion also had to be closed for the regular 2024 budget, which will be done with a mix of spending cuts and increased levies on energy.

“The federal government’s agreement on the 2024 budget is a lazy compromise with which the federal government is merely postponing the problems into the future,” Marcel Fratscher, head of the German Institute for Economic Research (DIW), said in a statement.

“The agreement means that the state will permanently lack €60 billion for climate protection and transformation,” he added.

As part of the deal, the heads of the coalition government agreed to raise the carbon price on heating and road fuels from the current €30 to €45 per tonne of CO2 in 2024, which will increase petrol and diesel prices by 4 to 5 cents per litre, according to the German automobile club ADAC.

“The faster increase in the CO2 price will be at the expense of citizens,” Fratscher said.

“In return, the German government still owes the climate bonus with which the CO2 price is to be returned to the people,” he added.

Prices for electricity will also increase by about 3 cents per kilowatt-hour (kWh) as a result of the agreement, as a planned subsidy to relieve customers from grid fees will no longer be financed.

While praising securing industrial subsidies from the climate fund, the German industry association BDI criticised the increase in electricity prices, saying it “does not help our global competitiveness at all, but on the contrary makes it even more difficult”.

“Energy will become more expensive for all of us,” BDI president Siegfried Russwurm said, adding that this will hit private consumers and companies alike.

“The traffic light [coalition] will leave behind economic and social devastation,” Dennis Radtke, MEP for the conservative opposition party CDU (EPP), wrote on X.

The agreement also includes a reduction in tax rebates on agricultural diesel and vehicles, which has even drawn sharp criticism from within the government itself.

“I have always warned against placing a disproportionate burden on our agriculture. If both the agricultural diesel subsidy and the motor vehicle tax exemption are cancelled, this will be the case,” Agriculture Minister Cem Özdemir (Greens) said in a statement.

(Jonathan Packroff | Euractiv.de)