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German cabinet approves plans to boost mid-term spending

Wednesday, March 18, 2015 - 18:30
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The German cabinet on Wednesday approved plans to boost spending by 15 billion euros (S$22.2 billion) over the coming four years with extra cash going to infrastructure, foreign aid and defence.

[BERLIN] The German cabinet on Wednesday approved plans to boost spending by 15 billion euros (S$22.2 billion) over the coming four years with extra cash going to infrastructure, foreign aid and defence.

The government met its goal of a balanced budget, known as the "schwarze null" (black zero) one year early in 2014, and has come under international pressure to boost spending to help stimulate economic growth across Europe.

As part of a supplementary 2015 budget, the government will give local communities some 3.5 billion euros from a new fund of"special assets" along with an added 1.5 billion euros in 2017.

This comes on top of plans announced by Finance Minister Wolfgang Schaeuble last November to devote an extra 10 billion euros to public investments between 2016-18.

But the spending plans were criticised as too modest by opposition politicians and business groups, who called on the government to splash out more money to fix the nation's creaky roads and bridges. "We can't even carry out the most necessary repairs with this, let alone begin new things," Gesine Loetzsch, head of parliament's budget committee, told a German radio station.

Marcel Fratzscher, president of the DIW economic think-tank told Reuters on Tuesday the government could easily boost investment by 15 billion euros each year without straying from its balanced budget.

Germany's infrastructure investment has lagged demand for many years and the DIW estimated that Europe's biggest economy needs 80-100 billion euros in additional public and private investment per year to close a gap with its euro zone peers.

For 2016, the government expects to increase spending by 3.3 per cent to 312.5 billion euros, with this figure set to grow to 334.0 billion euros by 2019. Tax revenues are expected to rise over the same period, so the government does not foresee the need to issue any new debt.

Alongside investment in infrastructure and internet expansion, the government plans to raise its spending on foreign aid and has budgeted 8.3 billion euros for this in the period 2016-2019. It will also provide extra funds for defence to modernise the army as global instability grows.

REUTERS

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