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2017 Annual report No. 21 - €50 million to remedy construction defects not transparently disclosed in the federal budget for 24 years

The Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety intends to have construction defects at a Federal Ministry office at Berlin remedied for €50 million by 2024 without transparently disclosing this item in the federal budget. Instead of taking an overall approach to the need for renovation, the Ministry has so far had the defects remedied on a case by case basis. To fund these individual works, the Ministry has drawn on diverse budget titles.

Five years after the move of the government, experts identified serious fire protection shortcomings at the Berlin office of the Federal Ministry for Economic Affairs and Energy. Since the warranty period had already expired, the Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety remedied a number of shortcomings at the expense of the Federal Government. In 2017, the Ministry assessed the overall need for renovation to be €50 million. It intended to have the shortcomings remedied by 2024. At first, the Ministry funded the remedial work from its aggregate budget title for “Construction works for accommodating the Federal Government outside the Parliament district at Berlin”. Furthermore, it used funds of the economic stimulus package II. Since the 2011 federal budget, respective funds have also been appropriated from the departmental budget of the Federal Ministry for Economic Affairs and Energy. In line with the principle of reliability and clarity of the budget, however, expenditure on the same purpose is not to be earmarked under diverse budget titles.

The Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety limited budget transparency. Furthermore, we doubted the efficiency of remedying shortcomings on a case by case basis over a period of 24 years.

We demand that the Ministry disclose the overall need for renovation and the capital expenditure appraisal. Large-scale construction works should generally be budgeted individually or explanatory notes should be considered as binding in case of aggregate budget titles in order to respect the right of Parliament to control the budget. Therefore, a specific amount needs to be earmarked for construction works. Subsequent expenditure on construction works also needs to be transparently allocated to these works in the federal budget.

2017 Annual report No. 13 - Expenditure on federal waterways’ construction projects lacks transparency

The Federal Ministry of Transport and Digital Infrastructure does not adequately account for the expenditure of many federal waterways’ construction projects in the federal budget. The Ministry refrained from regularly updating the expected overall project expenditure. As a result, the Ministry makes it difficult for itself and Parliament to manage the funds for important construction projects.

In the 2017 federal budget, the Federal Ministry of Transport and Digital Infrastructure itemised a total of 35 federal waterways’ construction projects. The expected total expenditure has been carried forward without changes for many years. For example, the Ministry has estimated expenditure on a construction project to be €493.4 million for years. During the same period, the construction price index for road construction increased by more than 50 per cent. Furthermore, in the case of overall projects with a long duration, the Ministry did not state what components of the project had already been finished and what the trends in expenditure of individual projects were.

According to the justification provided by the Ministry, the Ministry carried forward the expenditure as needed instead of using the construction price index. It intends to break down long-term projects into individual segments.

The Government’s bill on the 2018 federal budget includes this breakdown for the first time. We hold that this is only a first step and demand that the expected overall expenditure on the construction projects be updated regularly.

 

2017 Annual report No. 01 - General part

Findings on the Federal Government’s budget and capital accounts for FY 2016

We audited the budget and capital accounts of the Federal Government for FY 2016. In doing so, we did not find any variances significant for the discharge procedure between the figures stated in the accounts and in the underlying records. Government expenditures totalled €317.4 billion and thus were €0.5 billion higher than estimated in the budget. The remittance to the reserve “Asylum seekers and refugees” excluded, expenditures amounted to €310.9 billion. The revenues were €0.5 billion higher than budgeted. No net borrowing was required to balance the federal budget. The constitutional debt rule was complied with. Excess and extra-budgetary expenditure totalled €2.1 billion. Commitments totalled €156.1 billion. At year-end 2016, the Federal Government and the off-budget federal entities had assumed guarantees of €478.0 billion. Including off-budget federal entities, the Federal Government’s net worth was €252billion. Liabilities (including contingent liabilities for public service retirement and health care benefits) amounted to €1.866 billion.

1.1 Status of discharge procedure

Both Houses of Parliament granted discharge to the Federal Government for FY 2015. The respective resolutions were based on the 2015 annual accounts and our 2016 annual report on federal financial management. The Bundestag (Lower House of Parliament) has not yet put the granting of discharge to the Federal Government on its agenda.

1.2 Information pursuant to Art. 97.2.1 Federal Budget Code

Rather than as an aggregated annual account, the Federal Ministry of Finance has presented the budget and capital accounts separately since FY 2009. We audited compliance of these accounts. We did not find any deviations significant for the discharge procedure between the amounts stated in the accounts and those in the underlying records.

On the basis of samples we checked the extent to which federal budget revenues and expenditures were properly supported by vouchers. We used an arithmetical statistical method. For this purpose we took a random sample of 1,926 of the individual accounting entries recorded in the Federal Government’s accounting system. We found major errors in 1.39 per cent of the audited accounting entries. From this we conclude that the proportion of payments not properly supported by vouchers in the total number of individual accounting entries recorded in the Federal Government’s financial management system was likely to be of the same magnitude.

1.3 2016 budget implementation

The 2016 Budget Act of 21 December 2015 provided for revenues and expenditures of €316.9 billion without any net borrowing. One budget item was a withdrawal from the “Asylum seekers and refugees” reserve in the amount of €6.1 billion.

In order to facilitate additional public investments in the educational infrastructure, the Federal Government increased the resources of the Municipal Infrastructure Fund by €3.5 billion. This allocation of resources required a supplementary budget, which also provided for an adjustment of interest expenditure to current market rate levels, resulting in the reduction of the respective budget estimate by €3.5 billion. As a result, the 2016 federal budget with a target total of €316.9 billion was balanced without new borrowing.

As in the previous financial year, the 2016 Budget Act provided for any surplus in budget execution to be remitted to the “Asylum seekers and refugees” reserve. Furthermore, any profits of the German central bank in excess of the budgeted profits of €0.7 billion were to be allocated to the reserve. Based on these provisions, further €6.5 billion were allocated to the reserve on the closing of the 2016 budget. The withdrawal proposed for FY 2016 of €6.1 billion from the reserve was not necessary. Accordingly, the amount of the reserve at the end of FY 2016 exceeded the figure planned by €12.6 billion.

The Federal Budget Code does not contain any provisions about estimating such a reserve. In view of the funding shortage arising in connection with the refugee crisis, using a foreseeable funding surplus in implementing the current year’s budget for the purpose of accumulating a reserve in favour of future budgets is reasonable for a transitional period. However, continuously forming reserves for funding expenditures in subsequent financial years would significantly interfere with the principle of annual budgeting. Therefore, this instrument should be given up as appropriate. In future financial years, any surpluses should be used again for repaying debts of the Investment and Redemption Fund (IRF).

1.4 Budget implementation and supplementary budgets

In budget implementation, total expenditure and total revenue amounted to €317.4 billion, i.e. €0.5 billion more than estimated in the supplementary budget. No net borrowing was required to balance the 2016 federal budget. Total expenditure also encompasses allocations to the reserve for asylum seekers and refugees. Due to a revenue surplus of €6.2 billion and seigniorage amounting to €0.3 billion, it was possible to remit an aggregate amount of €6.5 billion to the reserve. Compared to the supplementary budget, items with significant underspending were especially interest expenditure, the programme for investing in the future and warranties.

However, the result of budget execution with respect to interest expenditure does not reflect the financing terms because it includes revenue of €6 billion from the sale of bonds at a premium. With dropping market interest rates, the Federal Government was able to generate additional revenues by issuing additional bonds on identical terms at a price above par. However, due to the higher interest rates, its interest expenditure will increase. Given that the bond premiums are recognised fully in the year of issue, this might give the impression of using discretionary scope.

Revenue (excluding seigniorage) increased by €0.5 billion compared to the amounts included in the supplementary budget. Tax revenue increased by €0.9 billion. Other revenues exceeded the budget targets by €5.8 billion. In deviation from previous planning, it was possible not to withdraw €6.1 billion from the reserve for asylum seekers and refugees.

In principle, revenues and expenditures have to be balanced without obtaining proceeds from borrowing. FY 2016 is the first year in which the new debt rule applies after the expiry of a transition stage stipulated in the Constitution. The debt rule is to ensure long-term sustainability of the federal and regional government budgets.

The new debt rule was complied with both in drawing up the 2016 budget and the supplementary budget.

Net borrowing as defined by the debt rule amounted to €-1.0 billion which means that a surplus has been achieved. While the federal budget was balanced without net borrowing, the off-budget federal entities recorded a surplus. This results in a structural surplus of €0.8 billion. Thus, the debt rule providing for a standard limit on structural net borrowing of 0.35 per cent of GDP was complied with also in budget implementation.

1.5 Details of revenues and borrowing powers

As a rule, the portion of the profit of the German central bank that exceeds the relevant federal budget estimate is to be paid into the Investment and Redemption Fund. The estimate for the central bank’s profit had been €2.5 billion. The actual profit totalled €3.2 billion. In compliance with a provision of the 2016 Budget Act and in deviation from the general rule, the portion of the central bank’s profit that exceeded the estimate in the federal budget in the amount of €0.7 billion was transferred to the reserve for asylum seekers and refugees. As already in the previous year, the amount was not used to retire debts of the Investment and Redemption Fund.

Since FY 2013, the budget account has included a “summary of the losses of federal revenue”. Apart from the remitted claims, temporary and permanent respites, settlements, changes in contracts and waivers for other reasons are disclosed. In FY 2016, losses of revenue totalled €3.6 billion.

The 2016 Budget Act did not provide for any borrowing powers to fund expenditure. Furthermore, no residual borrowing authorisation from the previous year was available. Likewise, no residual borrowing authorisation from FY 2016 is available for the 2017 federal budget.

1.6 Excess and extraordinary budget expenditure

In FY 2016, the Federal Government incurred excess expenditures of €1.9 billion and extra-budgetary expenditures of €0.2 billion. The aggregate amount of €2.1 billion is equivalent to 0.7 per cent of the total budget target. It exceeds the previous year’s figure of €0.3 billion by €1.8 billion. All excess and extra-budgetary expenditures were set off by under-implementation of other budget appropriations.

1.7 Unexpended balances

The amount in which the federal government level recognises unexpended balances from the past financial year is usually not yet known when the budget account is drawn up. We can therefore only present an overview of the past FY’s (2016) expenditure authorisations that are eligible for carry-forward and report on the unexpended balances recognised in the previous year (2015).

At the end of FY 2015, €11.8 billion were eligible for carry-forward to the 2016 budget. Unexpended balances of some €9.8 billion were actually carried over to FY 2016, i.e. €0.5 billion more than at the end of FY 2015.

At the close of FY 2016, unexpended balances of €16.7 billion were available. As a matter of principle, this amount is available for recognising unexpended balances in 2017. It is €4.9 billion higher than at the close of FY 2015.

A special feature of expenditure authorisations which come under devolved budget management is that, as a matter of principle, the use of unimplemented appropriations need not be matched by commensurate savings in the relevant ministry’s own departmental budget. They are available without any time limit. Departments and agencies formed unexpended balances of €2.3 billion of the expenditure authorisations eligible for carry-forward to FY 2016, which amounted to €2.4 billion. According to this, government departments wish to draw on more than 94 per cent of the unused expenditure authorisations in future years. In view of Parliament’s power to control spending, we expect all ministries to observe the requirements when assessing their specific needs. They have to apply a rigorous standard when recognising unexpended balances. This is particularly true in an environment of significantly increasing expenditure authorisations that are eligible for carry-forward. Of the expenditure authorisations that are eligible for carry-forward into 2017, €2.8 billion come under a flexible financial management regime, i.e. €431 million or 18 per cent more than in the previous year.

1.8 Commitment authorisations

The 2016 federal budget included commitment authorisations of €71.4 billion, i.e. €4.4 billion more than in the previous year. Actual commitments made under these authorisations totalled €41.0 billion. The utilisation ratio was 57 per cent; last year’s utilisation ratio was 67 per cent. In addition, the federal government departments entered into other commitments amounting to €4.2 billion due to other legal requirements or for on-going activities. Thus, the utilisation ratio for FY 2016 is lower than in the previous year. Almost half of the available resources had not been used. We expect all federal government departments to carefully assess if current commitment authorisations actually comply with the requirements for inclusion in the budget and to budget such authorisations only in the amounts necessary for fulfilling the tasks and for making payments when due.

As of 31 December 2016, payments of €156.1 billion were still to be made under commitments entered into. Of the total amount of commitments entered into until 2016, €43.6 billion have been allocated to FY 2017 and €34.4 billion to FY 2018.

1.9 Guarantees

Guarantees are instruments by which the Federal Government supports projects meriting assistance in terms of public interest. They also back up the Federal Government’s financial commitments vis-à-vis international financial institutions. The 2016 Budget Act had authorised the Federal Ministry of Finance to grant guarantees up to an amount of €486.4 billion. Thus, the guarantee ceiling increased by €9.5 billion compared to the previous year’s figure. By the end of FY 2016, the Federal Government had provided guarantees in the amount of €359.1 billion.

Under the Act on the Assumption of Guarantees in Connection with a European Stabilisation Mechanism, the Federal Ministry of Finance was authorised to assume guarantees of €211 billion for financing operations carried out by the European Financial Stability Facility. By year-end 2016, the Ministry had used €85.9 billion under this authority.

In 2016, federal revenues from guarantee fee payments and from honouring federal guarantees amounted to €2.6 billion. This contrasted with federal expenditures of €0.8 billion on compensation payments for defaults, debt restructuring and other expenditures in connection with honouring guarantees.

1.10 Funds under devolved financial management

Expenditure authorisations may be budgeted as funds for devolved financial management, if this serves to put budget funds to economical use. In contrast to other budget funds, they remain available for the specified purposes in future years without any time limit. If budget funds are brought under the devolved management regime, the amounts concerned need to be posted as expenditure and are thus stated in the budget account. However, they need not have been disbursed to third parties. This diminishes the desirable clarity of the accounts whose presentation is required by the German Constitution and Parliament’s ability to oversee spending.

By the end of 2016, the funds under devolved financial management on federal cash accounts totalled €1,639 million. Such funds were spread over ten departmental budgets. Compared to the previous year’s €1,223 million, their aggregate balance increased by €417 million, equivalent to 34.1 per cent. A major item with a rapid growth of funds under devolved financial management is departmental budget 30 (Federal Ministry of Education and Research).

1.11 Capital account

Administrative regulations issued with respect to Arts. 73, 75, 76, 80 and 86 Federal Budget Code are applicable to the Federal Government’s accounting system. However, not all major assets have been fully recognised. As in previous years, the Federal Ministry of Finance notes that the values of such assets have not yet been determined. These include federal real estate with infrastructure assets and tangible movable assets. Moreover, assets that have already been recorded do not adequately reflect the true financial position.

The valuated federal assets including those of the off-budget federal entities totalled €252 billion at year-end 2016. Liabilities (including provisions) totalled €1,866 billion. These encompass credit market liabilities (including borrowing to maintain liquidity) amounting to €1,116 billion.

We acknowledge the Federal Ministry’s efforts of the past few years to enhance data quality; to produce more meaningful and insightful capital accounts; and to include all items not yet disclosed. By doing so, they complied with the demands raised by the Bundesrechnungshof for many years. However, our findings show that current accounting procedures, the process of closing the accounts as well as the rendition of the overall account are error-prone and inefficient. We support the Federal Finance Ministry’s efforts to further complement and improve the capital account.

1.12 Off-budget federal funds

The budget account presents 25 federal off-budget funds and trading funds.

Between 2009 and 2011, the Federal Government used the Investment and Redemption Fund for financing additional steps to boost economic growth. As from 2012, the bodies responsible started to settle and liquidate the Fund. In derogation from the IRF Establishment Act, the portion of the central bank’s profit exceeding the amount estimated as revenue in the federal budget (€0.7 billion) was transferred to the reserve for asylum seekers and refugees. Differing from the years 2009 and 2014, in 2016 the Investment and Redemption Fund thus did not participate in the profits transferred by the German central bank. Likewise, the 2016 federal budget surpluses were not used to redeem liabilities of the IRF but served to fund the reserve for asylum seekers and refugees. This means that the original goal of repaying the debts incurred by the IRF for counteracting the financial and economic crisis in a more favourable period of the economic cycle was abandoned at least in the medium term. The Legislator’s original intention to redeem the debts within a reasonable period has become a distant prospect.

The Financial Market Stabilisation Fund set up to respond to the financial crisis was designed to help financial institutions to overcome liquidity shortages and to strengthen their equity capital base. The Fund is managed by the Federal Agency for Financial Market Stabilisation. At year-end 2015, the Fund was closed so that no new programmes can be taken.

The deficit accumulated since the establishment of the Fund totalled €22.5 billion on 31 December 2016. The loss will be carried forward until the Fund is wound up. Any loss remaining after the Fund’s winding-up will be shared by the Federal Government and the German states in the proportion 65:35, with the states bearing losses only up to the amount of €7.7 billion.

Another off-budget federal entity, the Energy and Climate Fund (ECF), is to provide the resources for programmes promoting an environmentally friendly, sustainable and affordable energy supply and climate change mitigation. To fund programme expenditure, the proceeds from auctions of tradable emissions allowances are to be allocated to the Fund (CO2 emissions trading). Since the amendment of the law on establishing the Energy and Climate Fund in 2014, the Fund is eligible to receive federal grants pursuant to the applicable budget act. In 2016, such grants totalled €713 million. Total expenditure of the Energy and Climate Fund was €1.6 billion.

Giving annual federal grants means abandoning the original goal of financing the ECF’s expenditure solely from climate change levies. Instead, the ECF is partly funded from the general budget and the amounts of such financing are likely to increase significantly in future years. An efficient, transparent and coordinated use of resources could be better achieved by estimating all resources in the federal budget. Furthermore, parliamentary oversight would be facilitated if all federal revenues and expenditures were disclosed in the budget account. Against this background we do not perceive any need for maintaining the ECF.

The Reconstruction Aid Fund was established in July 2013. The off-budget fund serves to channel disaster relief to victims of floods from 18 May to 4 July 2013 and compensate for damage not covered by insurance.

When setting up the Fund in 2013, the Federal Government allocated €8 billion to the Fund. €1.5 billion were designed for restoring federal infrastructure affected by the flood, €6.5 billion for eliminating flood damages in the German states.

The actual cash outflow was lower than anticipated. Up to year-end 2016, only €3.0 billion of the Fund’s total resources were called, of which €773 million in 2016.

The Federal Government has already exercised the option to reallocate unneeded Fund resources of €1.217 billion to the federal budget.

In case the federal states do not fully use the portion of funds earmarked for them, the Federal Government may remit up to €1 billion from the Fund to the federal budget before the final account of the Fund resources is drawn up.

In order to help level out differences among the various federal states’ economic structure, financial assistance from the Municipal Investments Promotion Fund shall be granted to promote major investments of financially weak local governments and associations of local governments. Up to 90 per cent of such projects may be covered from federal grants to financially weak local governments.

Initially, the Municipal Fund was endowed with a one-off amount of €3.5 billion. By virtue of legislation for restructuring the federal fiscal equalisation system as from 2020 and amending budgetary law, the endowment was increased to €7.0 billion by a second allocation of €3.5 billion. This amending legislation also provided for an option to grant financial assistance to financially weak municipalities for nationally significant investments in the field of educational infrastructure. Furthermore, the funding period was extended. The second allocation and thus the increase of the total endowment was authorised by the 2016 Supplementary Budget Act before the Constitution was amended. The said Act came into force in the beginning of 2017.

In FY 2016, the Municipal Fund resources of €146.2 million were claimed. Based on the actual volume in FY 2016, i.e. €3.5 billion, the disbursement rate was 4.2 per cent. The unused budget funds were allocated to a reserve. To observe the principle of annuality, we recommend that expenditure should only be budgeted when they meet the formal requirements for inclusion in the budget.

In the case of the Municipal Fund, we also hold that it does not meet the strict criteria to be applied to the establishment and maintenance of off-budget federal entities. There are no apparent advantages over estimation in the federal budget. Given that the volume of the Municipal Fund has meanwhile been doubled to €7.0 billion, that there has been an extension of the funding areas and that the possible duration of grant-funding has partly been extended by four years, this financial support should be directly included in the federal budget and not budgeted in an off-budget federal entity.

 

2017 Annual report – volume I No. 02 – General part

Trends in federal public finance – Challenges and options for action for the 19th legislative period

Due to the general elections, the 2018 draft budget will not be deliberated on and adopted in Parliament (principle of discontinuity). However, it describes the financial point of departure and the action required in the new legislative period. From a fiscal point of view, the framework conditions remain favourable. For the fourth time in a row, the Federal Government is able to submit a draft budget balanced in revenues and expenditures without net borrowing. This is possible due to a stable economic trend with a high rate of employment, low unemployment and expected increases in tax revenues and low interest rates. The medium-term financial plan up to 2021 also provides for no new borrowing. Nevertheless, considerable fiscal challenges lie ahead in the medium and long term. These include the demographic change reflected above all in increased grants to the statutory pension insurance scheme and the growing need for investments in infrastructure. It remains to be seen whether, in the long run, the eternity burdens of the interim and final storage of nuclear waste will require additional funding from the federal budget. The fiscal burden on Germany stemming from the reception and integration of asylum-seekers and refugees continues to be disproportionately high in comparison to most other European Union states. The Federal Government increasingly supports the mission performance of the federal states and the municipalities. This leads to an interlocking of tasks, operational and funding responsibilities which makes control and audit by the Federal Government difficult. A positive aspect is that we have been given access rights to audit evidence at entities outside the federal government level where such entities manage federal funds. Following our proposal, Parliament has also implemented the necessary control and audit mandate of the federal administration with respect to financial assistance.

2.1 Key budgetary figures up to 2021

The key figures set out in the FY 2018 draft budget and the medium-term financial plan up to 2021 are based on the Federal Government’s assumption of a favourable economic trend based on the spring 2017 projection for the German economy. The draft budget calls for expenditure to rise to €337.5 billion in FY 2018, which means an increase by €8.4 billion, equivalent to 2.6 per cent over the 2017 target figure. Once again, we found significant increases of expenditure under some departmental budgets. Expenditure policy thus remains expansive. Tax revenues are projected to grow by €7.8 billion, equivalent to 2.6 per cent, to €308.8 billion. To balance the 2018 budget, €8.2 billion are to be withdrawn from the “asylum reserve” formed in FY 2015. As in the annual budgets since 2014, no net borrowing has been planned.

Since 2007, new off-budget federal entities such as the Energy and Climate Fund and the Municipal Investments Promotion Fund have been set up. The existence of such subsidiary budgets may impair such budgetary principles as unity, completeness, clarity, current-year principle and annuality. We therefore reiterate our recommendation not to rely on alternative funding channels in the form of subsidiary budgets. The required resources are to be estimated in the core budget as expenditures or commitment authorisations.

According to the medium-term financial plan, expenditures will rise to €356.8 billion up to 2021. The revenue budget is to continue to increase to up to €341.6 billion. No new borrowing for balancing the budget has been scheduled for the financial planning period. Compared to the previous financial plan, expenditure will rise above all in the defence budget. Estimates of social expenditure are lower. Nevertheless, they will continue to increase during the financial planning period. Financial burdens will be alleviated by additional toll revenues estimated as from 2019, the withdrawals from reserves scheduled for the 2018 and 2019 budgets and the partial reversal of the general revenue shortfall included in the previous financial plan.

2.2 Fiscal challenges

The figures of the 2018 draft budget and the financial plan up to 2021 include a number of fiscal risks that may impair the medium and long-term sustainability of the federal budget. This includes the rising expenditure in connection with demographic change and the maintenance and modernisation of infrastructure. Additional burdens arise for the interim and final storage of radioactive waste, the need to cope with the influx of refugees and the modified funding arrangements between the Federal Government and the federal states. At the European level, additional burdens may emerge due to the Brexit and potential impact of the sovereign debt crisis.

The fiscal burden on Germany stemming from the reception and integration of asylum-seekers and refugees continues to be disproportionately high in comparison to most other European Union states. According to the 2018 draft budget, the Federal Government will allocate €21 billion to this purpose. Further burdens in the range of tens of billions of euros have to be expected in the medium term. A considerable portion of this will be distributed to state and municipal budgets through VAT.

The restructuring of the financial relationships between the Federal Government and the federal states will result in additional burdens for the federal budget in the annual amount of €10 billion as from 2020. The aggregate financial support of the Federal Government to states and municipalities will total more than €76 billion in 2018. Compared to that, little progress is being made in the separation of tasks. At least, a decision has been made that the federal motorways will be taken over by a company controlled by the Federal Government. However, considerable challenges will have to be overcome before this reorganisation can become operationally effective. With regard to subsidised housing, the relevant tasks and funding responsibilities will be ultimately assumed by the federal states as from 2020.

We recommend that our proposals and ideas for a greater separation of tasks and funding responsibilities will be pursued further in the new legislative period. The objective must be to achieve greater transparency in federal cooperation and to enhance financial self-reliance of the different levels of government. A positive aspect is that we have been given access to audit evidence at entities outside the federal administration where such entities manage federal funds. Following our proposal, Parliament has also implemented the necessary steering and control rights of the federal administration. This enables the Federal Government to adequately control compliance and performance above all of mixed funding resources.

Even though the Federal Government’s fiscal situation appears favourable, greater emphasis should be placed on the structural consolidation of the federal budget in the face of current and potential challenges. Since the savings potential in the expenditure budget appears limited, the focus should be on the revenue budget in order to prepare for meeting the fiscal challenges and, where appropriate, for sustainably financing tax relief. A critical review of existing tax relief to be carried out at regular intervals could open up considerable fiscal leeway. There is a high consolidation potential inherent in the subsidies in the taxation of energy. The comparably low tax rate on diesel fuel should also be questioned. Another pending issue is the reform of the reduced VAT rate which we have demanded for years.

2.3 Compliance with the debt restriction rule

The new constitutional debt restriction rule has been effective since FY 2011. According to this rule, the Federal Government may not exceed a borrowing limit of 0.35 per cent of gross domestic product (GDP) in times of normal economic growth. According to the 2018 draft budget and the financial plan up to 2021, borrowing relevant for the debt rule will remain below the ceiling set. The Federal Government’s draft budget anticipates a revenue deficit of €8.5 billion that is to be set off by the withdrawal of €8.2 billion from the “asylum reserve” and by seigniorage (€0.3 billion). The “asylum reserve” of €18.7 billion formed from the revenue surpluses of the 2015 and 2016 budgets would decline to €3.8 billion as a result of the withdrawals planned under the 2017 and 2018 budgets. According to the medium-term financial plan, the remaining amount is to be used to balance the budget in FY 2019. In our opinion, continuously forming reserves to fund expenditures in subsequent budgets seriously encroaches upon the principle of annual budgeting. Furthermore, the recognition of allocations to and withdrawals from reserves as revenue and expenditure, respectively, likely does not comply with the EU fiscal rules. Therefore, this instrument should be given up as soon as possible.

The planned safety margin to the limit of structural net borrowing is appropriate under fiscal aspects in order to be able to cope with adverse fiscal developments and new challenges while complying with the debt rule. Thus, the foreseeable outflow of resources from the off-budget federal entities is already included in the calculation of the relevant limit for structural net borrowing.

2.4 Top-down approach and decision made in March 2017 on benchmark figures

Since 2012, the Federal Government has drawn up its budget proposal by means of the top-down procedure. In this regard, it sets binding benchmark figures regarding revenues and expenditures of all budget accounts in order to implement the new debt restriction rule. In March 2017, the Federal Cabinet adopted the financial benchmark figures for the FY 2018 draft budget and the medium-term financial plan up to 2021. According to the tax revenue estimate as of May 2017, revenue forecasts for the period up to 2020 improved by €11.4 billion as compared to the benchmark figures adopted. This is attributable to more favourable forecasts of economic trends. On the other hand, the results of the negotiations at federal government and states level about their financial relations need to be taken into account in the medium-term financial plan as from 2020. On balance, the planning figures for the period 2018-2021 improved by a total amount of €17.2 billion compared to the decision about the benchmark figures.

Since 2016, the Federal Government has underpinned budget preparation by means of spending reviews, i.e. relevant analyses of revenues and expenditures. Two final reports supplemented by recommendations are available for the two issue areas “Housing” and “Promotion programmes for energy transition and climate change mitigation”, which were selected in the last budget preparation procedure. Since the saving of budget funds is not the first priority in such analyses, the fiscal impact of the recommendations is limited. With regard to an efficient and effective use of budget funds, we consider it appropriate to do periodical analyses in the course of budget preparation. We appreciate that the Federal Government plans to include in its analysis for the 2017-2018 cycle two issues of current interest in political and economic terms, i.e. the issues of “Procurement of standardised bulk goods” and “Humanitarian aid and transitional aid including the interfaces crisis prevention, crisis response, stabilisation and development cooperation”.

2.5 Trend and structure of expenditures

Pursuant to the 2018 draft budget, social security expenditure is to increase by €3.3 billion to reach €173.8 billion. Notwithstanding the relatively minor increase of 1.9 per cent, social security expenditures form by far the largest expenditure item in the federal budget. This is due to the large funding provided by the Federal Government to the statutory pension insurance and health insurance schemes, financial support of the labour market and migration-related expenses. In addition, the Federal Government has increasingly paid social expenditure which, according to the constitutional assignment of tasks, should be primarily borne by the states and local authorities. This mainly concerns social assistance benefits. According to the financial plan, the share of social expenditure in the total budget will increase even further – from 51.5 per cent (2018) to 52.2 per cent (2021). For the first time since 2013, the 2018 draft budget anticipates an increase of interest expenditure in 2018. Compared to the proportion of social expenditure, the share of investments remains at a low level.

As stated in the 2018 draft budget, expenditures for supporting the various retirement benefit schemes (statutory pension insurance, retirement benefit programme for farmers and for federal employees, benefits under special pension schemes in Eastern Germany and retirement benefits for former civil servants of the then government-run railway, postal and telecommunications services) amount to more than one third of total expenditures. The biggest items in this expenditure category are grants to the statutory pension insurance scheme totalling €93.7 billion. According to the financial plan, they are expected to increase to reach €103.3 billion in 2021. This increase is due to the demographic trend and enhanced benefits (such as the maternal pension supplements and a new provision under which employees may retire early at the age of 63 without a reduction of their pension claim) and the Act extending pension legislation to Eastern Germany.

The favourable labour market situation has had a positive impact both on the federal budget and on the Federal Employment Agency’s budget. For the financial planning period, the Federal Government expects only a slight increase of labour market expenditure from €37.1 billion in 2017 to €38.3 billion. This is contingent upon the smooth integration in the first labour market of refugees entitled to protection. Based on the stable labour market situation that is currently expected, the Federal Employment Agency is likely to accumulate budget reserves: Up to 2021, the reserve is expected to increase to about €29 billion.

The federal grants channelled via the Health Fund to the statutory health insurance scheme remain high at €14.5 billion annually. Despite an increase of expenditure by 4.3 per cent in 2016, the scheme’s financial situation is comfortable since rising expenditure has been largely set off by higher contribution revenues. At year-end 2016, the financial cushion in the statutory health insurance scheme totalled €25 billion. In some areas of health care, expenditure is increasing last but not least due to demographic trends. Without cost cutting programmes, it is likely that the funding need and the burden on the federal budget will increase in the medium term.

Where interest expenditure is concerned, the federal budget continues to benefit from historically favourable refinancing terms. Nevertheless, the Federal Government does not expect future interest expenditure to continue to decline as in recent years. According to the 2018 draft budget, interest expenditure is to increase slightly from €18.5 billion in 2017 to €20.8 billion. One of the reasons for this is that revenues from bond premiums as in recent years are no longer expected. In the subsequent years of the financial planning period, interest expenditure is to increase only moderately. Compared to previous financial planning, the budget estimates for interest expenditure have been considerably reduced: In the period 2014-2020, these reductions will total €109 billion. The interest expenditure to tax revenue ratio is to remain slightly above 6 per cent. This is equal to the 1977 level, although the debt-to-GDP ratio is three times as high. The risk of changing interest rates is not inconsiderable in the light of average annual gross borrowing of €175 billion. However, any growth of interest expenditure would be mitigated by an extension of the lock-down period for interest rates.

2.6 Trend and structure of revenues

Tax revenues are by far the most important source of revenue for the Federal Government. According to the May 2017 tax revenue forecast, a further increase of tax revenues is expected for all public budgets. The Federal Government’s tax revenues are to rise by more than 3 per cent annually to €341.6 billion in 2021. The tax-to-GDP ratio will also increase. It is forecast to rise to 23.3 per cent of GDP at the end of the financial planning period and will thus be 0.8 percentage points higher than the actual figure in 2016 (22.5 per cent). However, due to ceding shares of VAT revenue to the states and local authorities, the Federal Government benefits ever less from this development. While its share in the total tax revenues of general government was 43.3 per cent in 2011, it has been declining ever since. The introduction of the financial transaction tax at the European level remains still uncertain.

Under the vertical financial equalisation scheme, the Federal Government gives large grants to the States. The decline attributable to the digressive scheme applicable until 2019 to the supplementary federal grants for special needs will not continue. As a result of the restructuring of the financial relations between the Federal Government and the States, the federal supplementary grants will be increased as from 2020. There will be two new types of grant: the grant to supplement municipal tax revenues and the research promotion equalisation grants. Additional expenditure items are financial reconstruction aid for the federal city states of Bremen and the Saarland. The financial volume of grants from federal tax revenues will therefore increase significantly.

In the 2018 draft budget, other revenue is estimated at €30.8 billion – reduced by aggregate losses of revenue of €2.1 billion. The biggest items in this revenue category are the other current revenues of €9.2 billion. These include administrative revenues from fees and charges, e.g. the toll for lorries (trucks), totalling €5.7 billion. The shortfall of the revenues needed to balance the budget is to be set off by a withdrawal of €8.2 billion from the reserve formed in the 2015 budget and by seigniorage of €0.3 billion. Significant proceeds from the sale of capital assets (privatization revenues) are no longer likely to occur.

2.7 Debt and debt service

The accumulated federal debt including the debt of off-budget federal entities, which totalled €1.26 trillion in 2016 is likely to change only insignificantly compared to the previous year’s figure. It has been declining slightly since 2014. The Federal Government’s debt to GDP ratio is declining more strongly and is anticipated to be once more in the range of the ratio as it stood in 2008 before the financial crisis (38.5 per cent of GDP). Nevertheless, the debts of the banking sector assumed by the Federal Government still exist. The extent to which these obligations will permanently increase the debt level can only be determined after the finalization of all financial assistance operations. With an annual average of €175 billion, gross borrowing will remain at a high level in the financial planning period.

2.8 Warranties

The Federal Government’s risk to become liable by virtue of assumed sureties, guaranties and other warranties may become a burden on the federal budget on the medium and long term. According to the 2018 draft budget, the aggregate ceiling for all kinds of warranties is to be €494.2 billion, equal to the previous year’s figure. So far, the ceilings for warranties set by the Budget Act have not been fully utilised. At year-end 2016, €364.7 billion were committed. This is equivalent an utilisation rate of 75.0 per cent.

Apart from the powers granted by the Budget Act to assume warranties, the Federal Government has given guaranties for financial market stabilisation and in favour of the European rescue packages. The latter serve to safeguard the financial assistance given to some states of the euro area. After the closure of the financial assistance programmes for Ireland, Spain, Portugal and Cyprus, the focus is on financial assistance to Greece. Whether these assistance programmes will result in burdens on the federal budget not foreseen so far will depend on the further development of the European sovereign debt crisis and cannot be reliably estimated at this time.

2.9 European fiscal rules and their national implementation

At the European level, Germany has committed itself to limiting its general government deficit (revenue deficit) and its debt level and to comply with binding fiscal rules. The reformed set of rules introduced in response to the European sovereign debt crisis has become increasingly extensive and complex. This trend may adversely affect rather than promoting compliance with the fiscal rules. In 2016, the European Court of Auditors found that, while there were detailed regulations and guidelines for the procedure to be adopted in case of an excessive deficit, there was nevertheless a lack of coherence and transparency in their application. After analysing the European fiscal rules, Germany’s central bank also arrived at a critical assessment. It recommended in particular, to strengthen the fiscal rules by giving them a simple and transparent design and to make the assessment of compliance with them more targeted and less policy-driven. This may be achieved by involving an institution other than the EU Commission. We also consider it expedient to underline the seriousness of compliance with the stability goals of the European fiscal policy by a consistent application of the fiscal rules. If EU bodies hesitate for years to respond to the infringement of the rules, this may weaken the confidence in the resilience of the Monetary Union in the face of crisis.

For the structural deficit, the European fiscal compact imposes a medium-term target of 0.5 per cent of GDP. Germany has remained below this benchmark already since 2012. In its stability programme, the Federal Government expects a (structural) revenue surplus of between 0.25 and 0.5 per cent of GDP. Germany is also complying with the European requirements for reducing its debt to GDP ratio. According to the Federal Government’s estimate, this ratio is to decline to 57 per cent of GDP by the end of the financial planning period in 2021, once again lower than the benchmark rate of 60 per cent of GDP. Germany thus is among the financially most stable Member States within the European Union.

Based on the German stability programme, the Council of the European Union concludes that Germany is likely to comply with the Stability and Growth Pact. Based on the European Commission’s assessment, it recommended, among other matters, that Germany enhance, at all levels of government, public investment, especially in education, research and innovation, improve the efficiency and investment-friendliness of the tax system and reduce the high burden of charges on low earners. The recommended expansion of public investments basically coincides with our position. Nevertheless, given the existing fiscal challenges, the Federal Government’s leeway for action is limited. In no case should the reduction of the still high debt level aimed at under the Stability Programme be jeopardised by expenditure programmes funded by borrowing.

Germany has enshrined the ceiling of 0.5 per cent of GDP for the general government revenue deficit in its national budget legislation. By setting up the Stability Council, a national early warning system for the prevention of fiscal emergencies at federal and state level has been introduced. The Stability Council’s position has been strengthened further in the course of restructuring the financial relations between the Federal Government and the federal states. As from 2020, the Stability Council will explicitly monitor compliance with the constitutional debt rule. Furthermore, there is now a legal provision requiring the analyses of the Stability Council to be performed on the basis of a uniform cyclical adjustment method. This enhances comparability and transparency of the analyses carried out by the Stability Council. We find it deplorable that, in the course of the restructuring, it was not possible to confer upon the Stability Council the power to sanction infringements to help better enforce its recommendations.

The Federal Government must have a special interest in the targeted implementation of the budget oversight procedure because, in comparison to the other levels of government, its share in the general government deficit is significantly higher. In view of the expenditure on refugees and the general financial concessions of the Federal Government in connection with the restructuring of the Federal/State financial relations, its leeway for action seems to be largely exhausted. The Federal Government’s priority should now be to secure its long-term fiscal sustainability. If it does not succeed in this, Germany may lose its role as anchor of stability within the European Union.

 

2016 Annual report Volume II No. 28 - Federal Government’s warranty risk from the Extremus Insurance against damage caused by terrorism reduced by half a billion euros

In response to our recommendation the Federal Ministry of Finance has reduced the volume of the Federal Government’s warranty for damages arising from terrorist attacks by half a billion euros. Moreover, the Federal Government intends to withdraw from the warranty in the course of the next years. The insurance industry is to develop offers without federal warranty by not later than year-end 2019.

Extremus Versicherungs-AG (insurance company) is specialised on insuring companies and institutions against large-scale damage through terrorist attacks in Germany. If the damage exceeds a defined threshold, the federal warranty comes into effect. Up to 2015, the maximum amount of the warranty was €8 billion.

By establishing the warranty, the Federal Government pursued two objectives: On one hand, it intended to promote the development of a private sector offer of insurance coverage. On the other hand, it aimed at comprehensively protecting the German business community from the financial consequences of grave terror attacks.

We found that the Federal Government had not achieved these objectives. We therefore recommended that the Ministry reconsider the warranty.

The Ministry followed our recommendation. Effective from the beginning of 2016, it reduced the federal warranty from €8 billion to €7.5 billion. Moreover, the Federal Government intends to withdraw entirely from granting such warranty.

It set the target for the insurance industry to offer insurance coverage against terrorism without federal warranty by no later than year-end 2019.

 

2016 Annual report Volume I No. 59 - Development of departmental budget 60

Departmental budget 60 General Fiscal Administration differs fundamentally from the departmental budgets of the federal departments that are mostly expenditure oriented. This budget primarily includes the estimates of those federal revenues and expenditures which

  • do not have a substantive connection to the remit of any line ministry or
  • are related to the remits of several federal departments without any of them having the lead responsibility.


The major item of this departmental budget is tax revenues (actual figure 2015: €280.1 billion). According to the 2017 draft budget, they are to increase once more compared to the previous year by 4.8 per cent to €301.8 billion. Given their financial importance, they form a major component of our audit work (cf. annual report items 61-68). Revenue generated by withdrawals from reserves in the total amount of €12.8 billion has been budgeted for FYs 2016 and 2017. The reserves were built up in 2015 to provide funding for part of the federal expenditure foreseen to be incurred in subsequent financial years in connection with the reception and accommodation of asylum-seekers and refugees.

The 2017 draft budget calls for expenditures of €14.7 billion which thus will be approximately equal to the previous year’s figure.

Departmental budget 60

General Fiscal Administration

 

 

2015

actual figures

2016

target figures

2017

draft budget

in € million

Departmental revenue

292 044,3

303 559,6

314 915,4

Departmental expenditure

28 092,6

14 916,3

14 653,3

Commitment authorisations

2 543,1

2 975,2

333,6

 

(established) posts

Staff

-

500,0

500,0

Expenditures of €1.8 billion on investments in the future have been estimated in the 2016 budget and are managed by six federal departments. These funds are part of an €10 billion aggregate package for the years 2016-2018. Also in response to our recommendation, the Federal Finance Ministry allocated these funds to the departmental budgets of the federal line departments in the 2017 draft budget. This corresponds to the principle of ministerial autonomy enshrined in the Federal Budget Code.

An increase of tax revenues to €340 billion has been forecast for the financial planning period up to the year 2020. Nevertheless, this will depend on the overall economic trend. In spite of growing spending obligations, the Federal Government remains committed to its goal of balanced budgets without new borrowing. The increased tax revenues provide an essential basis for honouring this commitment.

Expenditure is scheduled to increase to €18.1 billion in 2020. Grants to the Energy and Climate Fund and the pension scheme for retired Post Office civil servants.

2016 Annual report Volume I No. 58 - Development of departmental budget 32

In 2015, expenditures under this departmental budget totalled €21.8 billion, while revenues amounted to €1.4 billion. As in the previous year, the Federal Government did not have to rely on new borrowing.

Departmental budget 32

Federal debt

 

 

2015

actual figures

2016

tar

get figures

2017

draft budget

in € million

Departmental expenditure

21 777,6

25 227,1

20 115,4

Departmental revenue

1 418,7

1 529,4

1 276,2

 

  • In the past, the Federal Government regularly engaged in new borrowing in order to close the federal budget’s funding gap between expenditures and revenues. This resulted in a steady increase of the federal debt. Since 2014, this trend has been brought to a halt.
  • As a rule, the Federal Government does not retire debts falling due but rolls them over (follow-up financing). Under this practice, the accumulated debt does not decline. The Federal Government shifts its debt burden including future interest payable further into the future.
  • At year-end 2015, the federal debt totalled €1,050.9 billion, i.e. €18.5 billion less than in the previous year. Formally, the Federal Government has not retired any debt. Rather than that, the favourable development of the federal budget enabled the Federal Government to borrow less than it needed for follow-up financing.
  • Expenditures under departmental budget 32 especially include the interest the Federal Government has to pay on its debt. The Federal Government assumes that interest expenditure will amount to €19.2-€21.9 billion. Whether this assumption will hold true depends on future trends in interest-rate levels.
  • Under the Budget Act, the Federal Government was authorised to assume warranties of up to €476.9 billion in 2015. It used this authority to a degree of 76.1 per cent. The damage incurred so far from previous warranties totals €6.1 billion and has been caused exclusively by warranties for the domestic business community. The amount of damage has more than halved in comparison to the previous year’s figure.
  • Outside the Budget Act, the Federal Government provides financial assistance and assumes warranties in favour of German financial sector enterprises in order to safeguard the functioning of the financial markets. For this purpose, it set up two off-budget federal entities, i.e. the Financial Market Stabilisation Fund and the Restructuring Fund.
  • In addition, the Federal Government has assumed warranties for lending assistance to Greece and for the time-limited European Financial Stability in order to ensure financial stability in the European Monetary Union. In 2013, the newly established permanent European Stability Mechanism (ESM) replaced the EFSF.

 

2016 Annual report Volume I No. 53 - Development of departmental budget 30

The Federal Ministry of Education and Research has the task of promoting education, science and research. In 2017, €17.6 billion have been budgeted for these purposes, i.e. 7.1 per cent more than in the previous year.

 

Departmental budget 30

Federal Ministry of Education and Research

 

 

2015

actual figures

2016

target figures

2017

draft budget

in € million

Departmental expenditure

15 195,7

16 400,3

17 557,5

Departmental revenue

176,3

83,9

36,3

Commitment authorisations

2 985,3

8 022,0

6 882,5

 

(established) posts

Staff

854a

1 014

1 029

Explanation: a Actual staffing as of 1 June 2015.

 

A large portion of these federal funds are made available to the federal states in order to support them in the discharge of their educational tasks. In 2015, for instance, 54.7 per cent of the expenditures appropriated under this departmental budget were tight up under agreements between the Federal Government and the states. In our opinion, the Ministry needs to ensure financial transparency by providing an overall analysis of these various grants and their impact. Only thus will it be possible to assess whether the expectations linked to the allocation of the federal funds are met.

The Ministry intends to award institutional grants of €5.8 billion to scientific institutions in 2017. While the institutions emphasise the high significance of the more flexible framework conditions that have applied in recent years, their impact on the institutions’ scientific capacities and the use of the federal funds is yet unclear.

Based on our advice, the Ministry has begun to harmonise and intensify results evaluations of grant-funded programmes and projects. Moreover, the Ministry will need to analyse and monitor large grant-funded projects more thoroughly because considerable planning and management deficiencies have occurred in some projects. These imply financial risks for the Federal Government or may impair the achievement of its goals.

 

2016 Annual report Volume I No. 52 - Development of departmental budget 23

The Federal Ministry for Economic Cooperation and Development designs the Federal Government’s development policy. It spent €6.5 billion in 2015. Expenditures are to increase to €7.4 billion in 2016 and to €8.0 billion in 2017.

Departmental budget 23

Federal Ministry for Economic Cooperation and Development

 

 

2015

actual figures

2016

target figures

2017

draft budget

in € million

Departmental expenditure

6 513,7

7 406,8

7 987,0

Departmental revenue

759,5

620,2

930,6

Commitment authorisations

5 589,7

7 400,0

8 934,5

 

(established) posts

Staff

727a

760

775

Explanation:a Actual staffing as of 1 June 2015.

The revenues of €760 million obtained under this departmental budget in 2015 have mainly been generated by repayments and interest payments on loans granted under Financial Cooperation.

The Federal Government still pursues the goal of increasing the share of public expenditure on development cooperation in Germany’s gross national income to €0.7 per cent. In the years 2006-2013, it ranged from 0.35 to 0.39 per cent and increased to 0.42 per cent (€12.5 billion) in 2014. According to a provisional calculation, the share of public expenditure on development cooperation amounted to 0.52 per cent (€16.0 billion) in 2015. The increase over the 2014 percentage is mainly due to the reception of refugees in Germany. The funds spent on such reception have to be partly counted towards public expenditure on development cooperation. But even without counting the refugee costs incurred in Germany, public expenditure on development cooperation increased by 6 per cent compared to the previous year.

 

2016 Annual report Volume I No. 51 - Development of departmental budget 19

The Federal Constitutional Court located in Karlsruhe is an independent court of law. It monitors compliance with the Constitution of the Federal Republic of Germany. Its rulings are binding on all law courts, public authorities and the constitutional bodies of the Federal Republic and its states. The Court spent €32 million in 2015.

Departmental budget 19

Federal Constitutional Court

 

 

2015

actual figures

2016

target figures

2017

draft budget

in € million

Departmental expenditure

32,01

29,19

31,05

Departmental revenue

0,43

0,04

0,04

Commitment authorisations

0

0,4

0

 

(established) posts

Staff

163a

173

178

Explanation: a Actual staffing as of 1 June 2015.

 

2016 Annual report Volume I No. 49 - Development of departmental budget 17

The Federal Ministry for Family Affairs, Senior Citizens, Women and Youth is responsible for the policies on families, senior citizens, gender equality and youth.

The following superior federal entities are subordinate to the Ministry: Federal Department for Media Harmful to Young Persons and the Federal Office of Family Affairs and Civil Society Functions. The Federal Anti-Discrimination Agency is part of the Ministry.

In 2015, the Ministry’s expenditure totalled €8.7 billion.

 

Departmental budget 17

Federal Ministry for Family Affairs, Senior Citizens, Women and Youth

 

 

Explanation:a Actual staffing as of 1 June 2015.

 

The bulk of expenditure (88 per cent in 2015) under departmental budget 17 is accounted for by statutory benefits for families. These include e.g. parental allowance.

2016 Annual report Volume I No. 48 - Development of departmental budget 16

This Ministry has the lead responsibility for the Federal Government’s environmental and construction policies. Its remit covers the protection of the environment, national and international climate protection, nature conservation, nuclear safety, housing and urban development as well as building construction and financial support for Berlin and Bonn. It spent €3.6 billion in 2015. Expenditures of €4.5 billion and €5.5 billion have been budgeted for 2016 and 2017 respectively.

Departmental budget 16

Federal Ministry for the Environment,

Nature Conservation, Building and Nuclear Safety

 

 

2015

actual figures

2016

target figures

2017

draft budget

in € million

Departmental expenditure

3 588a

4 544

5 455

Departmental revenue

860a

659

765

Commitment authorisations

1 099

1 910

2 383

 

(established) posts

Staff

3 984b

4 556

4 649

Explanation: a Adjusted for budgetary offsetting.

b Actual staffing as of 1 June 2015.

In 2015, the Ministry spent €2.1 billion on housing and urban development. For 2016, this expenditure has been estimated at €2.8 billion. Thus, this policy continues to be the financially most important expenditure item. In 2015, high expenditures of €380 million were also incurred for the final storage of radioactive waste. €437 million have been budgeted for 2016. Spending on climate protection totalled €343 million in 2015. For 2016, €418 million have been budgeted for this item.

In 2017 and 2018, the federal states will receive compensation payments of up to €1.5 billion from this departmental budget. The reason for this given by the Federal Government was that financial support towards low-income housing construction was cancelled. In addition, the Federal Government subsidised urban development with €300 million annually.

The final storage of radioactive waste causes financial risks for this departmental budget. The expenditure of €483.6 million estimated in the 2017 draft federal budget is merely based on rough estimates. In future, a new company owned by the Federal Government is to plan, operate and close down final storage facilities. The 2017 draft federal budget does not yet reflect the impact of the restructuring of final storage activities on the number of posts and amounts of expenditure of the responsible federal authorities.

 

2016 Annual report Volume I No. 47 - Development of departmental budget 15

The Federal Ministry of Health is responsible for the legal framework of the statutory health and long-term care insurance system and gives grants to the statutory health insurance funds. In addition, it has regulatory powers in the field of health care and addresses issues of health protection and the fighting of disease. Five subordinate entities assist the Ministry in the discharge of its functions.

In FY 2015, expenditure under this departmental budget totalled €12.1 billion, thus accounting for 3.9 per cent of total federal budget expenditure.

 

Departmental budget 15

Federal Ministry of Health

 

 

2015

actual figures

2016

target figures

2017

draft budget

in € million

Departmental expenditure

12 072,1

14 572,9

15 096,1

Departmental revenue

125,7

110,9

99,2

Commitment authorisations

51,8

69,9

69,5

 

(established) posts

Staff

1 978a,b

2 167b

2 204b

Explanation: a Actual staffing as of 1 June 2015.

b Scientific staff not registered in lists of posts not included (actual staffing as of 1 June 2015: 599).

  • At €11.5 billion in 2015, the lump-sum grant given by the Federal Government to the health insurance funds to compensate them for non-contributory insurance benefits, accounts for 95 per cent of total expenditure under this departmental budget. Together with the contributions of the members of the health insurance funds, this lump-sum federal grant is paid into the health fund managed by the Federal Insurance Office. The health insurance funds receive allocations from the health fund for the expenditure they incur on the payments of benefits and on administration. In 2016, the federal grant increases to €14 billion. As from 2017, the federal grant is to total €14.5 million and is to remain stable in the subsequent years.
  • In our 2015 annual report, we criticised omissions of the Federal Insurance Office in connection with the critical financial situation of a working group of health insurance funds. Another key issue addressed by our audit was the provision of aids for patients insured. We found deficiencies in the qualification procedure for suppliers of aids. The quality of the aids provided often depends on co-payments of the insured persons. Deficiencies in the provision of aids may however lead to secondary diseases resulting in a long-term increase of the benefits health insurance funds have to pay.
  • In 2015, the Federal Ministry of Health spent €40 million on preventive health care. In addition, it spent €72 million on departmental research, pilot projects and institutional funding of research institutions. Furthermore, it spent €32 million on international tasks.
  • In 2015, the revenues from fees for the testing and approval of drugs, vaccines and medical devices declined significantly compared to the previous year. The Ministry also expects such revenues to decline by €12 million.

 

2016 Annual report Volume I No. 44 - Development of departmental budget 14

The tasks of the German Armed Forces are derived from the objectives of Germany’s security and defence policy. The required funding is provided under departmental budget 14, known as the defence budget. In 2015, the defence budget totalled €34 billion while €36.6 billion have been estimated for 2017. This accounts for 11 per cent of the total federal expenditure budget.

Department budget 14

Federal Ministry of Defence

 

 

2015

actual budget

2016

target budget

2017

draft budget

in € million

Departmental expenditure

33 986,3

34 287,8

36 611,6

Departmental revenue

811,3

242,1

412,0

Commitment authorisations

3 428,6

17 114,0

23 480,4

 

(established) posts

Staff

246 175a

261 107

258 419

Explanation:a Actual staffing as of 1 June 2015.

Expenditure under international commitments is to increase from €970 million in 2016 to €1.3 billion in 2017, which represents an increase of 37.4 per cent. Expenditure on defence research, development and testing has been estimated at €1.1 billion, which represents an increase of €351 million (46.9 per cent) over 2016. The Federal Ministry of Defence intends to commission several large development projects. These include above all the tactical air defence system and the airborne signal detection wide-area surveillance and reconnaissance system. The volume of defence procurements is to increase by €266 million to €4.8 billion.

In 2015, the Defence Ministry spent €482.3 million (11.8 per cent) less than budgeted. As in the previous years, the signing of contracts for the procurement of several weapon systems and deliveries by contractors were delayed. In 2015 budget execution, the Ministry used the authority conferred by budget notes to spend the amounts thus saved on the acquisition of shareholdings in companies (€221.8 million), administrative expenditures in connection with international missions (€62.8 million), salaries of civilian employees (€59 million) and health care benefits for civil servants (€29.6 million).

In 2016, the Ministry announced two schemes known as “Reversal of Materiel Trends” and “Reversal of Personnel Trends”. In the opinion of the Defence Ministry, defence investments of up to €130 billion will be required up to 2030 in order to flexibly adjust the procurement of materiel to the tasks of the Armed Forces rather than applying a rigid ceiling. The medium-term financial plan provides for an increase of the defence budget to €39.2 billion by 2020, which would represent an increase of €4.9 billion compared to 2016. According to the Ministry’s assessment, such increase would widen the scope for defence investments especially from 2019 onwards.

The core component of the Reversal of Personnel Trends scheme is the intended increase in the number of military established posts by about 7,000 up to the year 2023. Furthermore, restructuring exercises are to reinforce military personnel by 7,400 soldiers. Therefore, the 2017 budget does not continue the previous reduction of established posts. The Ministry originally intended to reduce the number of established and non-established civilian posts to 56,000 by year-end 2017. This target figure is to increase by about 4,400 to about 60,400. The 2017 defence budget still provides for about 78,000 established and non-established posts. The Ministry assumes that the new target figure will impact the budget estimates in 2027 at the earliest because, up to then, it will have to continue the abolition of posts. From 2017 onwards, a “personnel board” in the Defence Ministry is to annually forecast personnel needs of the next seven years and thus to assist in budgeting.

We expect the Ministry to develop a sound basis for its overall human resources planning. We recommend that the Ministry do so with its own agencies. Furthermore, it should analyse the tasks, business processes and staffing needs of its recruitment organisation before restructuring it once again.

 

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