Germany’s new government has passed a supplementary budget which seeks to transform its climate and transformation fund as the country continues its shift towards a green economy.
The supplementary budget, passed unanimously by Chancellor Olaf Scholz’s cabinet, will channel 60 billion euros ($68 million) of unused debt in this year’s federal budget into the government’s climate and transformation fund for future spending.
The budget manoeuvre was agreed last month by the centre-left Social Democrats (SPD), pro-spending Greens and fiscally more cautious Free Democrats (FDP) in their coalition deal, allowing the parties to make the most of a temporary, pandemic-related suspension of borrowing limits in the constitution.
The new government hopes the money will help the government to cope with the economic consequences of the coronavirus pandemic and enable a powerful leap into a carbon-neutral future.
The coalition wants to deploy the funds to make critical public investments in climate protection measures – from charging points for electric vehicles to better insulating homes – as well as continuing the digitalization of the economy.
The debt-financed injection of 60 billion euros will increase the fund’s volume to 76.2 billion euros at the start of next year.
In addition, the German government will channel up to 18 billion euros of additional tax revenue, mainly stemming from eco taxes and the CO2 emission trading scheme, into the climate and transformation fund in the course of next year, bringing its fiscal reserve for investments close to 95 billion euros.
Scholz’s ruling coalition agreed to use an emergency clause in the constitution for a third year in a row in 2022 to suspend debt limits and enable new borrowing of 100 billion euros.
This will come on top of unprecedented net new debt of 130 billion euros in 2020 and 240 billion euros in 2021.
From 2023 onwards, the new ruling coalition aims to return to the debt brake rule of the constitution that limits new borrowing to a tiny fraction of economic output.