Despite these successes, there is further need for improvement.
Improving the quality impact of public expenditure and programmes:
In the R&D field, for example, the findings compiled by the WPA-AG show that, when it comes to
qualitative improvements in individual policy areas, not only the assignment of public funds is important,
but above all the efficiency of the assigned funds. The economic effect of public funds spent on research
and development (R&D) in Germany can be optimised by a complementary allocation to private-sector
R&D investment; in this way, private funds and initiatives can also be mobilised more strongly than up
to now. There is also the question of improved methods for measuring the output of public R&D
investment in Germany. Although highly developed evaluation systems are used, there is still
unquestionably a considerable need for reform.
Stronger strategic orientation:
In conceptional terms, many of the reform measures described are individual programmes that need to be
integrated even more strongly into a financial-policy strategy that is systematically geared to growth and
quality improvement. In this connection, the focus should be continue to be on the kind of long-term
structural reforms that are suitable for achieving a constant and sustainable reduction in budgetary
expenditure commitments.
2. Implementation and institutions
The reform measures described – particularly those relating to the social security systems – are not part
of ongoing budget processes and only have a partial, indirect effect on the functional composition of the
public budgets. It was therefore not necessary to adapt institutional regulations or create new procedures
in order to implement the measures.
On the whole, Germany has an effective budget-planning system; on the one hand it is based on tried-
and-tested structures, on the other it also offers room for further development. There are numerous
statutory and institutional arrangements, in both the budget-preparation and the budget-execution phases,
which aim at guaranteeing solid budgets. Germany's medium-term financial planning in particular has
proved its worth as an effective instrument for ensuring a stable financial policy.
In Germany the federal states are by constitution independent in their budgetary policy. It is by law not
possible that the central government gives prescriptions of the federal states for both levels of
government have equal rights. However, there are important rules in place that clearly restrict the
budgetary acting of both layers of government.
The 1969 budget reform created a binding, uniform framework for the budgetary law of the Federation
and the Länder. On the one hand, the Basic Law's constitutional regulations on the budget were
reformulated (Articles 109 to 115), on the other, the Law on Budgetary Procedures (HGrG) was passed,
containing the common principles on budgeting which must be adhered to by the Federation and the
Länder^2.
In their budget management, the Federation and the Länder have to take into account the requirements of
macroeconomic equilibrium (price stability, high level of employment, equilibrium in the balance of
payments, and constant and appropriate economic growth – Article 109, paragraph 2 of the Basic Law).
Borrowing may not exceed the total expenditure set for “investment,” except under conditions of
“sustained disturbance of macroeconomic equilibrium”, that has to be substantiated by the federal
government (constitutional limit on indebtedness) [Article 115 Grundgesetz]. This prominent emphasis
(^2) Based on the constitutional distribution of responsibilities and the extensive tax pool, cooperation on legislation between
the Federation and the Länder (via the Bundesrat) is also vital on the revenue side – for instance with the aim of
improving the tax structure.