A new analysis by the Munich-based Ifo Institute suggests the current budget planning may fall short of its objective to bolster growth-relevant infrastructure investments. Researchers, including Niklas Potrafke, expressed concern on Friday that the €100 billion allocated to German federal states from a special fund risks being utilized primarily for existing projects rather than generating new investment.
The Institute highlighted a shift in investment patterns due to the introduction of new debt. The government’s plans allow the use of this new debt to finance already-approved investment projects. While this may free up funds within core budgets for other priorities, notably in social programs, the Ifo Institute argues that it effectively represents an expansion of the welfare state financed by debt.
The €500 billion special fund for infrastructure is intended to provide German states with €100 billion. The legal framework governing its use, the Law for the Financing of Infrastructure Investments by States and Municipalities (LuKIFG), has undergone a significant change. An earlier draft of the law, from June, stipulated that investments must be additional – meaning new projects, not replacements for existing ones. This requirement of additionality has since been removed in the government’s current draft.
The ongoing shift in government spending is further illustrated by changes within existing budget allocations. The draft budget for the federal government already includes a net reduction of €11.4 billion for the Transport Ministry. These funds are now to be channeled through the special fund. Simultaneously, spending at the Labor and Social Affairs Ministry has seen a net increase of €11 billion.
