Germany just approved its 2012 fiscal year budget, proving that the only way you get the deficit down is ECONOMIC GROWTH.
BERLIN - Germany's Cabinet has approved a 2012 budget that foresees spending remaining more or less flat and a significant decrease in new borrowing.
The draft budget approved Wednesday calls for total spending of €306 billion ($443 billion), compared with €305.8 billion this year.
Net new borrowing is pegged at €27.2 billion. That compares with €48.4 billion this year and is below the €31.5 billion the government projected for 2012 in March.
Germany's strong economic growth has boosted tax revenues this year.
The Cabinet also decided in principle Wednesday to cut taxes for low- and middle-income earners in 2013. However, details have yet to be resolved.
Guess why Germany is now able to pay down its debt and cut taxes on low income people at the same. Yep, you guessed it...they raised taxes on the rich and on corporations:
Starting in January, the value-added tax will rise three percentage points to 19 percent. If approved by Parliament, a "wealth tax" would be introduced for those with annual earnings of more than €250,000, or $320,000, increasing their tax rates to 45 percent from 42 percent. Tax breaks for commuters would be reduced and there would be lower tax-free allowances on personal savings.
Merkel and her Social Democrat coalition partners pushed through the tax package during a cabinet meeting this week.
German business hemmed and hawed, but they eventually went along with it. What did Germany do with those increased tax revenues? Well...they invested in their economy:
Chancellor Angela Merkel's cabinet approved a €50bn (£46.7bn) stimulus package today, the biggest programme in Europe, to tackle overcome the country's deepest economic crisis since the second world war.
The package will require a new borrowing level of €36.8bn, more than twice the amount planned for 2009 before the impact of the global crisis on Europe's largest economy was realised. It is also more than three times the amount forecast in the middle of last year. A controversial draft supplementary budget is planned to cover the leap in borrowing.
The programme is equivalent to 1.6% of gross domestic product, and is the biggest of its kind in German history. In the UK, the government unveiled fiscal stimulus measures totalling some £20bn in last year's pre-budget report.
The German package includes €17.3bn of investment in the country's infrastructure, as well as tax cuts, a one-off €100 child bonus, and an increase in some social benefits. A boost to the car industry in the form of an "old banger bounty" will offer people the chance to trade in cars more than nine years old and to receive a €2,500 bonus towards a new or slightly used car.
What did they do to sustain domestic demand? Well, first, they decided that mass layoffs were not a good idea. Instead, they did this:
German Chancellor Angela Merkel addressed the International Labor Conference (ILC) in Geneva, Switzerland on Tuesday to show the world how an industrial country can recover from the global economic crisis that occurred in 2008. Through a highly- effective economic policy called “kurzarbeit,” or “short work,” Germany has been able to resuscitate its economy.
“Short work” is sustainable because it allows businesses that face a temporary economic shortfall an opportunity to avoid laying-off employees by cutting the their hours. If the employees’ hours and wages are reduced by more than 10 percent, the German government pays workers 60 percent of their lost wages. Employees also have a chance to work overtime to make up for a loss in wages.
So lets recap, quickly:
1. Germany faced a budget crisis to which they responded by substantially raising taxes on the wealthy and holding the line, not cutting, spending.
2. Germany then faced the financial crash by increasing debt, increasing taxes, and investing those funds in infrastructure, increased social spending, and tax cuts for things like an extensive (far bigger than ours) national cash for clunkers program.
3. Germany then dealt with the employment crisis by not laying people, but instead cutting hours. Then they made up the lost income through direct government payments to their people.
But here we are doing the almost direct opposite of what we know is working:
1. We are extending tax cuts for the wealthy.
2. We are cutting infrastructure and social spending.
3. We are laying people off by the hundreds of thousands and then paying them a meager amount to do nothing, but only for 99 weeks at the most.
So, according to the dominant economic policy controlling both the White House and Congress, Germany should be Somalia by now, right?
Wrong:
BERLIN — Germany’s unemployment rate dipped to 6.9 percent in June as the booming economy bolstered the country’s labor market further, official figures showed Thursday.
The unadjusted jobless rate was down from 7 percent in May, and the number of people registered as unemployed was 2.893 million — the lowest figure for June since 1992. The total was 67,000 lower than the previous month and down 255,000 from a year earlier.
Strong exports and signs of a recovery in domestic demand have powered the German economy — Europe’s biggest — for more than a year now, making the country a standout in the 17-nation eurozone.
After restoring economic growth and jobs as their first priority, Germany is now turning its attention to its deficit, which will drop substantially next year. Additionally, they are considering cutting taxes for low income people and the middle class, but not too soon. They're going to wait and see how things go with the Euro.
And folks, this is the CONSERVATIVE party in power.
Now ask yourself this question: Will the current debt negotiations, if successfully concluded, help or hurt economic growth in America?
