Economic restrictions for the implementation of the financial package

Firstly, in the future there will be an exception to the debt brake for defence and security spending, secondly, a special fund for investments with a term of twelve years and thirdly, a relaxation of the debt brake for the federal states. The possibility of additional government spending financed by credit will inevitably increase government debt. If the newly created financing options are fully utilized, the nominal debt level will increase by around 2.2 trillion euros over the next twelve years. The debt to GDP ratio is estimated to rise to 85 percent in 2037. However, interest expenses will also increase notice-ably as a result and will place increasing strain on public budgets. The interest-tax ratio of the central government could double to 17 percent from 2025 to 2037. Despite the financial package, this results in immediate pressure for consolidation, as a higher proportion of future tax revenue will have to be spent on interest.

A simulation of the fiscal effects shows that the debt ratio will be lower the better the future federal governments succeed in generating additional growth with the additionally financed investments. There is now a need for clear political leadership that considers economic constraints. Otherwise, the risk of inflationary pressure will be high. Therefore, a prioritization of specific defence and infrastructure and a rapid implementation of a reliable investment projection is needed that can realistically be implemented in the medium term. In addition, the following points are crucial for the success of the state investment offensive:

• It is important to initiate measures that promote capacity building in the private sector.
• In view of demographic developments, it is important to stabilize the labor supply and provide appropriate work incentives.
• A strict limit on social security contributions is a prerequisite for the revival of private investment activity. This requires spending discipline instead of additional promises and structural reforms in medical and nursing care, even if this requires breaking down traditional role models.
• To ensure that public investment projects do not get lost in the jungle of approval procedures, administrative regulations and documentation requirements, there is a need for a reduction in bureaucracy and digitalization, in short: highly efficient public administration.