No Public Investments on Credit!

According to the Neue Zürcher Zeitung, the discussion about public investments entails the risk of deceptive packaging and mock battles (“Mogelpackungen und Scheingefechte”). Recognising the crucial importance of public investments, this kind of financing must not be seen as a general solution for economic growth and employment without exception. Moreover, public investments on credit would not be in a county’s general interest. It would be rather effective to consolidate the national budget due to savings so that public investments can be financed without the contraction of debts. This argumentation strongly reminds the current politics of the German Federal Ministry of Finance (BMF).

Development of Public Investments in Germany

According to a report from the BMF in May 2017, investment ratio in Germany – public investments divided by gross domestic product (GDP) – stands at 2.5% as of today. In comparison, from the 1970s to the late 1980s Germany’s investment ratio decreased constantly from 5.0% to 2.5%, increased due to structural investments in the course of the German reunification after 1989, and again decreased constantly to under 2% of the German GDP in 2005. Since then public investments increased by 3.8% on average annually.
Moreover, national earnings increased by 3.3% on annual average (in total of 427 billion euro) from 2005 to 2016. During the same time national expenses increased by only 2.5% (+ 327 billion euro), thereof public investments by 3.8% (+ 23 billion euro). With that the public deficit of 78.7 billion euro respectively 3.4% of the GDP in 2005 changed to a public surplus of 0.8% of the GDP (in total 23.7 billion euro) in 2016.

Budgetary Measures

Since 2005 public investments by the German federation, states and local authorities focus on the topics of university education and research. From 2009 to 2011 the stimulus packages I and II (“Konjunkturpakete”) led to short-term increases subsequently to the global financial crisis. Today the state and local authorities are responsible for two-quarter of the total public investments in Germany. According to the BMF, this is consequent to the financial politics of the current government. So, in which projects invested the German government and which projects are to come?

Legal measures to support public investments in state and local authorities:
Year Purpose of Legal Action Financial Impact in euro Period of Time
2014 (1) Transportation infrastructure
(2) Research
8.0 billion
each 1.8 billion
until 2017
2018 and 2019
2015 (1) Expanding institutions of child day care (refugee measures)
(2) BAföG-Payment (student subsidies)
(3) Financial support of the state governments and local authorities
(4a) Promotion of financially weak local authorities
(4b) Financial support of state governments and local authorities (refugee measures)
(5) Investments in federal highways
(6) Investments to improve the energy efficiency of buildings
0.75 billion
1.17 billion
1.0 billion
3.5 billion
1.5 billion
1.24 billion
0.8 billion
2016
until 2018
p.a. unlimited
p.a. 2015 until 2017
2015 until 2020
2017 until 2019
2016 until 2020
2016 (1) Social housing promotion (refugee measures)
(2) Childcare (refugee measures)
(3) Development of the regional rail transportation
(4) Future investment package
(5) Relief for the local authorities in housing (refugee measures)
(6) Annual integration subsidy for the states
(7) Housing-construction in the states
0.5 billion
1.983 billion
8.2 billion
10 billion
2.6 billion
each 2.0 billion
each 0.5 billion
p.a. 2016 until 2019
2016 until 2018
2017 until 2031
2016 until 2018
2016 until 2018
2016 until 2018
2017 and 2018
2017 Financial support of local authorities 3.5 billion 2017 until 2020
2018 Financial support of local authorities 5.0 billion p.a. from 2018
2020 Reorganisation of the financial relation between the federal government and the state governments 9.7 billion from 2020

European Comparison

The growth of public investments in the euro area since 2005 can – probably as a result of the financial crisis – not keep up with the positive development in Germany. The public expenditure in the euro area increased in the time period from 2005 until 2016 by an average of 2.4% whereas the public investment gradually increased at an annual average of 0.3%. The only member states with a stronger investment dynamic are four East European ones: Slovakia, Lithuania, Latvia, and Estonia.

Public Investments in Road Construction

Following the Federal Statistical Office (Statistisches Bundesamt), the number of gross investments (including construction investment of 199.7 billion euro) increased from 432.9 billion in 2005 up to 598.5 billion euro by 2016 (including construction investment of 308.8 billion euro). In 2016, investments for construction, preservation, refurbishment, and operation of federal highways in Germany increased compared to the previous year by 19% up to 13 billion euro. With Building Radar you are able to detect almost 13,000 publicly tendered projects within the road infrastructure just in the last two years.

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