Germany budgets for more spending on migrants, security

BERLIN (Reuters) - The German cabinet approved fiscal plans for 2017 on Wednesday that Finance Minister Wolfgang Schaeuble said catered for higher spending on migrants, security and infrastructure without having to borrow more money.

An influx of 1.1 million migrants last had year raised questions about whether Germany could cover the cost of accommodating and integrating the newcomers without jeopardizing its cherished balanced budget.

But Schaeuble, a veteran conservative member of Chancellor Angela Merkel’s cabinet, insisted that goal would be met.

“We are keeping our word and remain true to our solid financial policies in a difficult environment,” Schaeuble said.

“We are investing in infrastructure, education and research, we are doing what is needed to guarantee domestic and external security and we are helping migrants - all without (net) new borrowing,” he told reporters.

That drew criticism from the opposition far-left Linke’s budget expert, who said the government’s focus on balancing the budget was inappropriate at a time when Europe faced its worst crisis since World War Two.

“The European Union looks like it might fall apart due to the current conflicts but the German government is continuing to view the world through a balanced budget,” Gesine Loetzsch said.

Germany is setting aside 10 billion euros ($11.2 billion) to deal with the migrant crisis in 2017. It expects 800,000 new arrivals this year, and 600,000 next, Schaeuble said.

It will also provide extra funds for labor market programs and more day care center places for children.

Economy Minister Sigmar Gabriel said this was a key signal for “social cohesion”, and it was important that everyone in Germany benefited.

Overall, the financing plans drawn up by Schaeuble’s ministry envisage a 30.9-billion-euro increase in spending to 347.8 billion by 2020.

With unemployment running at 6.2 percent -- the lowest since German reunification in 1990 -- and the economy growing steadily, he expects that rise to be covered without new net borrowing due largely to rising tax revenues.

“It is essential that we refrain from (net) new debt in the upcoming year and in our financial planning until 2020,” Schaeuble said.

In 2017 alone, the government wants to hike spending by 8.6 billion euros to 325.5 billion, including 33.7 billion for investment.

Economists said Germany was still profiting from reforms introduced more than a decade ago by former Social Democrat (SPD) Chancellor Gerhard Schroeder.

“Germany continues to reap the rewards of its 2004 ‘Agenda 2010’ labor market reforms,” Berenberg Bank economist, Holger Schmieding, said.

“With core employment ... up 750,000 year-on-year, German tax receipts and revenues of the social security system are rising so nicely that Germany can afford the extra spending without having to run a deficit.”

Enzo Weber of Germany’s Institute for Employment Research (IAB) said the number of people out of work would gradually rise this year as a growing number of refugees seek jobs, with few able to find work immediately. But providing for refugees was likely to create a five-figure number of jobs quickly.

The cabinet will approve final details of the 2017 budget and financing plans up to 2020 on July 6.