Friday, August 12, 2016

How to run a budget surplus German style and fight over the spoils

Germany's federal government continues to run a budget surplus. In an earlier post, we called the phenomenon "stealthy" and noted it was upsetting to many citizens.

The German economy is still doing better than most in Europe, and Christian Democrat (CDU)/Christian Social Union (CSU) politicians would really love citizens to stop right there when they discuss government finances. The same goes for the Social Democrats (SPD).

That's because both of the major parties also presided over a variety of cuts to social security and assistance programs while, at the same time, lowering taxes for the wealthy and creating a sustainable energy program in which individual consumers and small businesses finance renewable subsidies as well as rock bottom electricity prices for the heaviest industrial users.

The term for such policies when other countries have them is "austerity". In Germany, the proponents of austerity have largely succeeded in keeping the bad word  in check, using "Sparen" (i.e. to save) instead. Known as one of Europe's foremost nations of savers, the positive connotation rubbed off on government programs using the label. Even intermittent criticism as a "spardiktat" cannot completely she the benevolent imagery of "save".

Conservatives and the "free market liberals" (FDP) relentlessly claim that social democrats and/or Greens waste public money and accumulate government debt. It has been such a successful trope that hardly anybody outside of Germany, and even in the country, realizes that Social Democrats governed at the federal level for just a fraction of the almost 70 years after the war. Since 1945, there has been a single German government in which Social Democrats governed with another "left" party, the SPD-Greens coalition between 1998 and 2005. Cuts to the retirement system and the introduction of a vicious means tested basic assistance scheme introduced in those seven years do not strike one as debt prone socialist policy.
By the way, the German FDP "free market liberals" are famous as the party of choice of lawyers, pharmacists, and tax consultants - which all have great income protection through government regulations.  Luxury minimum wage, if you will.

Little wonder, then, that a study claimed Germany's social security retirement system might see 50% of recipients under poverty level by 2030.

Successive government have shown amazing ingenuity in moving money around, for example when money for jobless goes to pay for jobcenter administration.

Education expenditures, a 100% state function until very recently, have fallen to 3.1% of GDP, behind the U.S. with its 3.6%, way behind the UK's 4.5.
German teachers these days find themselves buying supplies out of their own salaries.

The most recent creative accounting stunt by Mr. Schaeuble is to dip into the health care fund in order to finance some of the health care costs for the large numbers of refugees who arrived in 2015.

The issue with this plan is that the fund is not financed through taxes but gets its money from health insurance premiums of workers and employers. Despite not being a government fund, the government decided to use 1.5 billion out of the 6.5 billion total to offset refugee health care costs.

The insurers protested, so did other healthcare experts.

But this is Germany, whose Chancellor, Ms. Merkel famously said in a speech in 2006 that "there is no such thing as a legal right to enduring democracy and socially responsible capitalism" (youtube link, the speech is in German).

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