Germany's lower house of parliament has approved a revised budget for 2024, as well as measures to compensate for a significant financial setback caused by a court ruling. The ruling not only posed challenges to the government's fiscal plans but also stirred up controversy with cuts to fuel subsidies for farmers, leading to protests.
Typically, the budget would have been approved in December. However, Germany's highest court ruled against the government's decision to repurpose 60 billion euros ($65 billion) meant for pandemic relief towards climate change initiatives and modernization efforts. This decision, which exceeded Germany's self-imposed limits on debt, created a 17 billion-euro shortfall in the 2024 budget.
To address this gap, Chancellor Olaf Scholz's three-party coalition formulated a package that involved reducing certain subsidies and expenditures while maintaining support for Ukraine. Initially, the coalition intended to eliminate a car tax exemption for farming vehicles and reduce tax breaks on diesel used in agriculture. Yet, due to opposition from the agricultural minister and subsequent protests by farmers, these measures were watered down. Consequently, the car tax exemption will be retained, while the cuts to tax breaks will be implemented gradually over three years.
In addition to the subsidy cuts, the approved legislation also includes an increase in the tax on plane tickets. Furthermore, last month, Germany's carbon dioxide emissions levy on fuel was raised beyond initial plans, and subsidies for purchasing new electric cars were abruptly terminated.
Although the lower house has given its approval, the cost-cutting measures still need to be considered by the upper house, which represents Germany's state governments. The next meeting of the upper house is scheduled for March 22, during which objections to the plan could be raised. If any disputes arise, they may be referred to a committee that mediates between the two houses.
The government's revised budget and the accompanying measures demonstrate Germany's commitment to maintaining fiscal responsibility while also addressing pressing issues such as climate change and modernization. However, the impact of these decisions on farmers and other affected groups should not be overlooked, as seen in the protests against the cuts to fuel subsidies. As the upper house weighs in on the matter in the coming weeks, discussions will likely seek a balance between financial stability and the concerns of various stakeholders.
