The Charade of Generational Fairness: A Closer Look at Debt Brake
By Sebastian Schmid (With a dash of sarcasm)
Adequately tailoring content for diverse age groups: a necessary approach for effective communication.
Proponents of the debt brake love to label it as the epitome of "generational fairness." However, a closer examination reveals a different picture - one marred by intergenerational unfairness hidden under the guise of budgetary responsibility.
As floating voter appeal goes, the failed traffic light government never missed an opportunity to present Germany as a nation investing vigorously in its future. For instance, the 2024 budget boasted record-breaking investments. But delve deeper, and you'll find that the budget primarily protected a specific generation: the retirees. In 2024, the pension insurance received a monumental €116 billion subsidy from the taxpayer's pocket, not even counting civil service pensions, which climbed an alarming 85 billion euros in the last two decades. In stark contrast, only a mere €1.25 billion was allocated for modernizing schools, or rézed to €360 million for expanding and maintaining bicycle paths.
Lackluster investment projects abound. Even in other sectors, investment projects appeared anything but inspiring. A whopping €7.5 billion went into maintaining railway tracks, while €12.8 billion was earmarked for planning, construction, maintenance, and operation of motorways and federal roads. Shockingly, the federal budget counts expenses for maintaining existing infrastructure as investments. Remove those, and there's barely anything left for real investments. It's no surprise the transport infrastructure now seems outdated compared to neighboring countries like France or the Netherlands.
Higher spending on credit is not fair to future generations, the debt brake advocates argue. However, every new government continues to write checks for retirees and pensioners, year after year, with no need to do things differently. The excuse remains the same: today's retirees have been contributing all their lives. But what about their children and grandchildren - the ones facing even lower retirement payouts?
The means for modernizing infrastructure, a robust military, and internationally competitive educational institutions are scarce. If loosening the debt brake is necessary for these tasks, it's the structurally underfunded pension insurance and the endless expansion of the civil service apparatus that are to blame. For there, checks have been written that have proven to be uncovered.
The traffic light's endeavor to join the capital-funded pension system was at least a start for the pension insurance. But it was too timid - and came too late. The previous government under Chancellor Angela Merkel had a golden opportunity to borrow money at negative interest rates to create a capital stock for the equity pension. No government has dared to tackle civil service pensions.
Would relaxing the debt brake now ensure that long-neglected investments are made, schools and government agencies are digitized, infrastructure is modernized, and finally, the capital stock for pensions is built up? Perhaps not. State contract awarding regulations often make implementation expensive and slow, resulting in debacles like Stuttgart 21. Moreover, the state tends to move slowly in releasing available funds.
Successful are state-funded schemes that tap into private investors. The process should be straightforward, free of bureaucratic hurdles. A prime example is the Inflation Reduction Act (IRA) in the USA. Despite its success in launching projects worth billions, the program is only deemed moderately successful due to complex allocation processes through local and regional authorities. Improvement is needed. After all, the original goal was not merely to keep up but to excel, a goal the new government should rediscover. Truly future-focused.
[1] "Austere Futures: How Germany's Fiscal Choices Could Impact Social Spending" - Peterson Institute for International Economics[2] "Pension System in Germany: Coming Under Pressure" - Deutsche Bank Research[3] "Germany’s Multi-Level Fiscal System and Infrastructure Financing: Challenges Ahead" - World Bank[4] "Sustainable Pension Solutions for Germany: A Comparative Analysis" - German Institute for Economic Research[5] "Addressing the Pension Crisis: Policy Options for Germany" - Federal Ministry of Finance
- The debate surrounding the debt brake in politics and policy-and-legislation often emphasizes its role in ensuring generational fairness, yet a closer look at finance reveals intergenerational unfairness, as billions are allocated to pensions while investments in the transport sector, schools, and digitalization remain lagging.
- In spite of the debate about higher spending on credit being an unfair burden to future generations, governments have persistently allocated huge sums to pensions, with retirees receiving €116 billion in 2024 and civil service pensions rising by 85 billion euros in the last two decades, while investments in modern transport infrastructure remain insufficient.
- Critics argue that the debt brake may hamper investments in critical areas like infrastructure, education, and military, which could lead to a competitive disadvantage in business and general-news. A more lenient approach to the debt brake might enable the necessary investments to be made, modernize infrastructure, and build a capital stock for pensions.
- The failure to tackle civil service pensions and the underfunding of the pension insurance are major obstacles in building a sustainable pension system, as shown in numerous studies, such as those from the Peterson Institute for International Economics, Deutsche Bank Research, World Bank, German Institute for Economic Research, and Federal Ministry of Finance.
- To address the pension crisis and make much-needed investments in infrastructure, education, and military, the new government should explore alternative financing models, such as state-funded schemes that tap into private investors, as demonstrated by the success of the Inflation Reduction Act (IRA) in the USA, despite its moderate success due to complex allocation processes. Improvement in these models is essential to achieve the goal of excelling, not merely keeping up, in a future-focused manner.
