BERLIN, Sept 9 - Finance Minister Hans Eichel said on Tuesday that without action Germany would bust European Union budget deficit limits again next year as he appealed to the opposition to back what he called a risky 2004 budget. "This is the fifth budget that I have presented as finance minister and it is without doubt the budget that until now has the biggest risks," Eichel told parliament at the start of debate on the federal government's 2004 budget. The opposition has criticised the budget for being based on optimistic assumptions of economic growth. It could use its majority in the Bundesrat, the upper house of parliament, to undo the budget sums by blocking measures Eichel has proposed to raise revenue.
Christian Democratic Union (CDU) budget spokesman Friedrich Merz said the budget was not a serious basis for discussion but gave no indication the opposition would block Eichel's plans. The opposition is divided over some of the measures and has postponed trying to agree a common line until after a regional election in Bavaria on September 21. "You are appealing to the opposition to agree to laws that haven't even been brought into parliament, which are far from being passed, but which today already form the basis for your budget planning for 2004. That's adventurous, what you are doing," Merz said. Eichel's budget foresees spending of 251.2 billion euros and new borrowing of 30.8 billion euros to make up for a projected revenue shortfall.
The government hopes to raise an additional two billion euros from privatisations, holding borrowing to 29 billion euros, but even government backbenchers admit there is a risk that borrowing could turn out much higher, as in 2003. Eichel repeated that federal new borrowing this year would be roughly double an original 18.9 billion euros target and the government would present a supplementary 2003 budget in the late autumn in order to authorise new debt issuance. The 2004 budget assumes the economy will grow two percent and that unemployment will fall next year, allowing it to reduce subsidies for the Federal Labour Office. But the budget text itself makes clear these assumptions are shakey.
"The probability has risen that GDP growth will be less than expected in the government's spring forecasts and that growth in 2004 will not be enough to create employment," the text says. EU DEFICIT LIMIT THREATENED "We're not giving up our growth target but we're saying it will be difficult to achieve," Eichel told parliament, reiterating government plans to accelerate tax cuts worth 15.6 billion euros which are designed to give a boost to the economy. Germany's total public sector deficit was 3.5 percent of gross domestic product in 2002, busting the EU Maastricht treaty's three percent limit, and the government has already forecast it will reach at least 3.8 percent of GDP this year. Eichel said that without action the public sector deficit -- the sum of deficits at federal, state and local government levels -- would bust the three percent limit again in 2004.
"The Maastricht public sector deficit was last year 74 billion euros, this year (it) will probably be a bit more, and if we don't take action it will be the same order next year," Eichel said. Eichel's budget proposals come as the government prepares to bring its "Agenda 2010" package of health, welfare and labour market reforms through parliament after a summer in which it had to overcome strong opposition in its own party ranks. Eichel said the budget could only be seen in the context of the wider reforms, aimed at curbing social security spending. The final shape of these reforms as well as the budget will not become clear until new tax estimates are drawn up in November.//