Resolutely proceed with budgetary consolidation – uphold the Stability and Growth Pact
In view of the growth target, the course of fiscal consolidation that has been embarked upon needs to be pursued more resolutely than hitherto. The general government deficit for 2002 amounts to 3.7 percent; according to the calculations of the German Council of Economic Experts, the structural deficit comes to around 2.75 percent. This must be eliminated by 2006. That will also allow sufficient scope for the automatic stabilizers to take effect. The rules of the European Stability and Growth Pact are not “stupid.” It was right to adopt the Stability Pact, and it is right to continue to uphold it.
(Proposal 20, sections 532 et seqq.)
Reducing government debt means strengthening growth dynamics and easing the burden on future generations
In the long run, a reduction of government debt will launch the economy onto a higher growth path; income per member of the domestic population will increase. If, as is to be expected, the growth rate is below the capital market interest rate for long-term government bonds, lower government debt will permit tax reductions in the future. This will ease the burden on future generations. The consolidation of public budgets and a sustained fiscal policy are two sides of the same coin.
(Proposal 3, sections 386 et seq.)
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Scale back government tasks in favor of private activity and concurrently refocus public spending on investment
With a government spending ratio of almost 50 percent, the state channels nearly half of aggregate income into its own hands. Even if there are good reasons for government intervention, private-sector activity should have priority over public-sector activity in a market economy. Efficiency is generally better achieved through private decisions coordinated via markets than through government action. The government expenditure ratio must therefore be reduced and government spending needs to be concurrently restructured:
– Despite extensive privatization in the past, the scope for privatization at the level of central, state and regional government has not yet been fully exhausted. Greater use needs to be made of market-based financing instruments. This includes the envisaged, agreed-upon highway tolls for trucks and the introduction of university fees, which has not yet been agreed upon.
– Subsidies should be granted for a limited period only and should decrease steadily over time; for reasons of political economy, cuts in subsidies should be made across the board; the reduction of subsidies and the tightening of tax breaks should be accompanied by the lowering of tax rates.
– The reduction of the government expenditure ratio should be coupled with rebalancing the expenditure mix in favor of public investment, especially in the transportation infrastructure as well as in education and science.
(Proposal 2, sections 378 et seqq.)
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