The Munich-based Ifo Institute has raised concerns that the current budgetary planning is failing to adequately bolster growth-relevant infrastructure investments. Researchers, including Niklas Potrafke, highlighted that the 100 billion euros allocated to German federal states from a special fund are at risk of being used for a limited number of additional investment projects.
According to the Ifo Institute, the introduction of new debt is shifting investments away from core budgets. While the government intends to allow new debt to finance already planned investment projects, this, in effect, represents an expansion of the social safety net financed by debt.
The special fund, totaling 500 billion euros dedicated to infrastructure, earmarks 100 billion euros for the federal states. The utilization of these funds is stipulated by the law concerning the financing of infrastructure investments by states and municipalities (LuKIFG). A draft of the law from June initially stipulated the additionality of investments-meaning the funds would be used for new projects only. This provision has since been removed in the government’s definitive draft.
Recent revisions to the federal budget already saw a net reduction of 11.4 billion euros allocated to the transport ministry, funds now intended to be diverted through the special fund. Simultaneously, the expenditures of the labor and social affairs ministry have increased by a net 11 billion euros.