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Hildesheim Declaration on new borrowing of federal and regional governments to mitigate COVID-19 impacts

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The Conference of the presidents of the German SAI and of the audit institutions of the federal states recognises that prompt action across all government levels is key to mitigating the impact of the COVID-19 pandemic. During the pandemic, tax revenues dropped significantly and public expenditures have soared.

The debt rule set forth in the German constitution has stood the test of time. In the current crisis, the debt rule offers exceptions that give the federal and regional governments the necessary borrowing headroom coupled with requirements for debt repayment.

However, the Conference holds the view that the exceptions to the debt rule should be used only after careful and considered reflection. It is important not to undermine the ban on new borrowing by undue recourse to the exceptional provisions of the debt rule:

  • Annual new borrowing to address an exceptional event shall be permissible only in the amount needed to fund the programmes earmarked to ease the crisis.
  • In each financial year, the causal relationship between pandemic-related extra spend and the related net borrowing needed shall be disclosed in a transparent manner, duly substantiated and established in final terms.
  • In accordance with the spirit of the debt rule to reduce net borrowing, all possible efforts towards balancing the budget shall be made. In particular, the use of budget reserves shall be considered.

Despite the short timeframe for tackling the crisis, it is critical for government programmes to ensure full public sector accountability and safeguard parliament’s power to adopt and control the budget. Such programmes should be part of the ordinary budget rather than be included in off-budget funds.

In future crises, a sustainable fiscal policy will be the only option for federal and regional governments if they want to continue performing their mission efficiently and effectively. Therefore, governments need to set a path to return to balanced budgets. In terms of spending this includes setting substantive priorities and initiating restructuring.

Reviewing compliance with the debt rule and the targeted use of the funds to tackle the impacts of the pandemic are key audit challenges. For this reason, public sector audit institutions will advise parliaments and governments accordingly.

For more information (in the German language) please see the press release of the regional audit institution of the state of Lower Saxony dated 22 September 2020.

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