100 billion euros for our cities: A new age of investment!

100 billion euros for our cities: A new age of investment!

On Wednesday, the Federal Cabinet decided on an important step to finance infrastructure investments in Germany. A total of 100 billion euros will be made available from a newly created special fund to support states and municipalities in the urgently needed modernization of their infrastructure. These investments are part of a fundamental realignment of financial policy that is taking place in response to the increasingly inadequate state of the transport infrastructure in Germany, reports Hasepost.

The new draft laws adopted as part of this package regulate the financing of infrastructure projects and efficient budget monitoring. A central aspect is the distribution of the special assets, which are distributed among the states according to the Königstein key. This agreement was made between the Federal Chancellor and the heads of government of the federal states.

Infrastructure health and public investment

The need for investment in Germany is immense. Net public investment has fluctuated around zero since the 1990s, which has led to a decreased level of modernity of the public capital stock. An alliance of economists had already called for the establishment of a special fund to finance public investments in order to counteract this situation. According to the Economic Service, the condition of the transport infrastructure is inadequate and affects all modes of transport. This highlights the urgency of action.

The draft laws stipulate that the investment measures will only be financed if they start after January 1, 2025. In addition, the states will in future be able to use the same structural debt flexibility as the federal government as part of the debt brake, which will significantly increase their budgetary flexibility. The possibility of approving measures extends until the end of 2036, which creates a long-term planning horizon.

Financial conditions and challenges

The introduction of this special fund goes hand in hand with a fundamental change to the Basic Law, which allows frigid defense spending and a separate budget for infrastructure and climate protection with credit authorizations of up to 500 billion euros. These changes have already given rise to different interpretations, with some seeing it as a historic decision while others see it as a political move by the new ruling coalition.

The Advisory Council for the Assessment of Overall Economic Development (SVR Wirtschaft) has criticized these measures and also recommends that traffic-related revenues such as truck tolls and vehicle taxes be used more to finance the transport infrastructure. The introduction of a car toll is also being discussed in order to ensure sustainable user financing.

A quick decision to set up the special infrastructure fund raises questions regarding the earmarking and additionality of the expenditure. The coalition agreement therefore provides for clear goals and specific areas of investment to be identified in order to ensure the meaningfulness and stability of these measures. Critics warn that funds from the special fund could potentially be used for investments that have already been planned, which would undermine the actual intentionality.

In summary, the provision of 100 billion euros from the special fund represents a significant step towards improving the publicly financed infrastructure in Germany. It remains to be seen whether the framework conditions and controls set will actually lead to the desired results.