Germany approves 2010 budget with record new debts

AP News
Posted: Dec 16, 2009 8:50 AM

Germany's new center-right Cabinet approved a 2010 budget plan on Wednesday that includes record levels of new debt and higher government spending as the country seeks to safeguard its recovery from recession.

The budget puts spending at euro325.4 billion ($475 billion), a 7.3 percent increase on this year's planned outlay of euro303.3 billion. It foresees new borrowing of euro85.8 billion ($125 billion) _ about euro48 billion more than this year, and the largest figure since World War II.

"This highest new borrowing is necessary to be able to react to the most serious economic crisis since the founding of the federal republic" after the war, said Chancellor Angela Merkel's spokesman, Ulrich Wilhelm.

Government income is forecast to decline to euro239.6 billion ($348 billion) from euro254.2 billion this year as tax revenue drops. The plan still requires parliamentary approval.

The economy returned to modest growth in this year's second quarter. The government has forecast it will grow by 1.2 percent next year after contracting by 5 percent in 2009.

Even as the recovery continues, unemployment is expected to rise next year.

The new budget plan foresees a 14.8 percent increase in spending next year by the Labor Ministry, which has by far the biggest single budget _ pegged at euro146.8 billion ($213 billion) for 2010.

Spending at the health, environment, education and agriculture ministries also is set to increase, while the Defense Ministry's spending is set for a marginal decrease of 0.1 percent to euro31.1 billion.

Finance Minister Wolfgang Schaeuble said Germany may just be able to keep its 2009 budget deficit within a European Union-mandated limit of 3 percent of gross domestic product.

However, next year's deficit will be "closer to 6 than 5 percent," he told reporters, stressing the importance of getting the deficit back down to 3 percent by 2013.

The 2010 budget plan approved by the new government, an alliance of Merkel's conservatives and the pro-business Free Democrats, is broadly similar to one put forward in June by Merkel's previous "grand coalition" with her center-left rivals.

However, the new government has placed an emphasis on tax relief as it tries to stimulate the economy, Europe's biggest.

It is working to win state governments' approval for a "growth acceleration bill" to take effect next month that includes adjustments to corporate tax rules, a cut in the value-added tax rate for hoteliers and an increase in child benefits.

Merkel's government also plans to cut and reform income tax laws starting in 2011 in a bid to stimulate growth, although those plans remain vague.

Germany's opposition argues that tax cuts are unaffordable when the global financial crisis has strained public finances.

Carsten Schneider, a lawmaker for the center-left Social Democrats, said the government should tell Germans now how it "plans to fill the financial craters."