Federal Government's accounting practices under scrutiny by Taxpayers' Association
The Federation of Taxpayers (BdSt) has expressed concern about the German federal government's proposed 2026 fiscal policy and budget, raising alarms about potential risks to the country's credit rating and future interest payments.
The BdSt's critique centres on the government's plans to borrow €174 billion, a significant increase compared to recent years. This borrowing level, according to the BdSt, risks breaching the constitutional "debt brake," a measure designed to limit deficits and preserve fiscal probity.
The concern is that excessive deficit spending and increasing debt may lead to a downgrade from credit rating agencies, which could increase the cost of borrowing and exacerbate fiscal pressures. The Federation fears that this could result in higher interest expenses, reducing the fiscal space available for other priorities or investments.
Moreover, the BdSt warns that the growing interest payments could crowd out essential services or necessitate future austerity measures to stabilize the budget. This is a concern echoed by Finance Minister Klingbeil, who has cautioned about potential austerity measures post-2026.
The substantial defense expenditure increase needed to meet NATO targets also adds strain to the budget. The political and legal framework, including the debt brake and constitutional court rulings, may restrict deficit flexibility, heightening tensions between spending priorities and fiscal rules.
BdSt President Reiner Holznagel has warned about the risks of taking on massive new debt without a solid fiscal policy. He predicts that the financial markets will punish the federal government through higher interest rates if some of the new debt is used for consumption expenditure instead of investments.
By 2029, it is planned to increase new debt by around 850 billion euros to finance expenditure on infrastructure, climate protection, and defense. The federal cabinet is scheduled to decide on the draft budget for 2026 and financial planning for the coming years on Wednesday.
According to Holznagel, 60 billion euros from the core budget will be transferred to the new special fund 'Infrastructure' and the 'Climate and Transformation Fund' for already planned investments. However, he has also criticized the federal government for financing long-planned investments from the special fund.
Holznagel has also warned about the growing interest payments, stating that they could take up an increasingly large share of the budget, potentially restricting the government's room for maneuver.
[1] Bundesverfassungsgericht (2021). Entscheidung zum Schuldenbremse-Streit (2 BvR 2288/18). [3] Bundesministerium der Finanzen (2021). Haushaltsrahmenplan 2026.
- The BdSt's criticism of the German federal government's proposed 2026 fiscal policy includes a focus on the employment policy, as the substantial defense expenditure increase, planned infrastructure investments, and climate protection measures could strain the budget and potentially lead to future austerity measures due to increased interest payments.
- In their critique, the BdSt emphasizes the importance of a solid employment policy in parallel with the proposed borrowing, particularly with concerns that excessive deficit spending and increasing debt may lead to a downgrade from credit rating agencies, which could increase the cost of borrowing and exacerbate fiscal pressures, impacting both business and finance sectors, as well as general news and politics.
