Public finances remains favourable

Given the
robust economic and labour market situation,
government budgets are profiting from further
falling interest expenditure. However, the fiscal
surplus is expected to be smaller than last year
as it will be partly offset by additional structural
outlays.

First, expenditure on refugees and
other immigrants will rise, particularly because
in 2015 many immigrants only arrived in
autumn, which meant that the bulk of the
related expenditure only affected a few
months. Second, the budgetary stance is
expansionary in other felds, too. For example,
spending is being increased in various areas,
such as housing allowance, infrastructure and
child day-care. In addition, the mid-year pen-
sion increases were particularly large.

The outlook for German public finances remains
favourable over the medium term. However,
recent experience of unexpectedly high fiscal
burdens in connection with the influx of immi-
grants underlines the importance of creating
safety cushions below the defcit ceilings that
provide room for manoeuvre within the fiscal
framework to cope with unexpected develop-
ments.

In view of the requirements set by the
national debt brake, this suggests that policy-
makers should generally strive to generate
moderate structural surpluses in the future as
well.