Economy under pressure: reforms required – what is the government planning?

Economy under pressure: reforms required – what is the government planning?

Business representatives in Germany are increasingly dissatisfied with the attitude of the federal government, which is primarily focusing on higher spending in the current budget debate. Helena Melnikov, General Manager of the DIHK, makes it clear that the planned new debt opens up financial leeway, but also brings with it a great deal of responsibility. She calls for a “decisive course of reform” and an acceleration of planning, approval and award procedures. In addition, the reduction in bureaucracy must be driven forward quickly in order to offer the private sector a better investment climate, as 90% of all investments in Germany come from this area.

Christoph Ahlhaus, managing director of the BVMW, also expresses dissatisfaction with the economic policy of the black-red coalition. He calls for a reduction in taxes, relief in energy prices and comprehensive welfare state reforms. In this critical situation, Stefan Körzell from the DGB also demands that future investments must not be played off against the welfare state. He advocates lasting solutions to strengthen municipal revenues, for example by introducing a wealth tax and a fairer inheritance tax.

Investments and social responsibility

Although the DGB is fundamentally positive about the 2025 budget, which provides for investments amounting to 116 billion euros, it warns of possible additional budget holes that could arise from the required corporate tax cuts. Verena Bentele, President of the VdK, highlights the growing gaps in health and nursing care insurance. She calls for a reform of the debt brake in order to enable long-term investments in the welfare state and counteract growing inequality.

According to IMK Many of the challenges mentioned above come in the context of a fundamental loss of economic prosperity in Germany. Monetary and fiscal policy initially reacted appropriately to price shocks, but from the beginning of 2023 increasing monetary policy restrictions and financial policy reactions resulting from the ruling of the Federal Constitutional Court are already evident. These developments have tightened fiscal policy while the economy remains fragile. There is an urgent need for reform with regard to the debt brake in order to prevent stagnation tendencies in 2024.

Another critical point is the need for socially acceptable and wealth-enhancing decarbonization. The focus on CO2 prices and per capita climate money entails risks and distribution policy problems, which is why the CO2 price should be part of a more comprehensive mix of instruments. The labor market is under pressure as unemployment rises in the short term, while there is a risk of a shortage of skilled workers in the medium term. Activating and training workers requires long-term financial resources.

On Tuesday, SPD party leader Lars Klingbeil will introduce the draft for the 2025 budget law in the Bundestag and present the financial plans for the coming years. The debate is already causing a lot of controversy in Germany's political and economic landscape.