BERLIN (Reuters) – Germany will have to stabilise its social security system with cash injections to cushion the effect of coronavirus on health, the labour market and pensions, officials said on Thursday, an effort experts estimate could cost many billions of euros.
The German economy, Europe’s largest, is facing its deepest recession since World War Two even though a lockdown to contain the spread of the virus is being gradually eased. The plunge in business activity is expected to push down tax revenues and tear a gigantic hole in the public finances.
Eckhardt Rehberg, budget chief of Chancellor Angela Merkel’s conservatives, said the latest tax revenue estimates, expected later on Thursday, will show that the fiscal room to manoeuvre is getting smaller and that Berlin has to set priorities now.
“We should not raise the impression that the state can do everything. That’s why I think we won’t be able to fulfil every spending wish,” Rehberg told ARD public broadcaster.
Rehberg said the government should focus on stabilizing the public social security system with cash injections, helping businesses with a fiscal stimulus programme and supporting other European countries during the economic recovery.
Asked what spending wish the government should reject, Rehberg said that he was against another cash-for-clunkers programme to support Germany’s car industry as the sector itself still had large financial reserves.
“Instead of mulling cash incentives to buy a new car, it’s better to think about (supporting) innovation in this area and not only in one sector, but also in other sectors,” he said.
Health Minister Jens Spahn, another member of Merkel’s conservatives, welcomed Rehberg’s budget priorities.
“In the coronavirus cabinet, we agree that payments (of employers and employees) into the social security system must not rise above the 40 percent threshold, especially in such an economically difficult situation,” Spahn told RND media group.
“So the logical consequence from this is that the federal government needs to inject more cash into the social security system to stabilize contributions in 2021,” Spahn said.
Rehberg and Spahn didn’t put a figure on the expected cash injections. But in the labour market alone, the Labour Office has calculated in a worst case scenario that the government would have to inject 15 billion euros in 2020 and 2021 to avoid higher payments from employers and employees.
Some experts estimate that in the public health sector there will be a budget hole of up to 14 billion euros this year.
Finance Minister Olaf Scholz from the co-governing Social Democrats will present the latest tax revenue estimates during a news conference later on Thursday (1300 GMT).
The figures are likely to show that federal and state governments as well as municipalities will see roughly 100 billion euros less in tax revenues this year than previously estimated. This means that Scholz will have to mull another supplementary budget later this year.
Germany has approved an initial rescue package worth over 750 billion euros to mitigate the impact of the coronavirus outbreak, with the government taking on new debt for the first time since 2013.
The first package agreed in March comprises a debt-financed supplementary budget of 156 billion euros and a stabilisation fund worth 600 billion euros for loans to struggling businesses and direct stakes in companies.
(Reporting by Michael Nienaber, Editing by William Maclean)