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1.4. Medium-term dimension of budgeting
The fiscal policy parameters derived from the debt brake are established in the early
part of the budget-making process, and are reflected in particular in the internal budget
estimate (for general government) that is formulated in February/March and that is reflected
in the “benchmark figures decision” that guides the budgetary process. It is important to
note that the benchmark figures set down allocations not only for the budget year, but for the
entire multi-annual planning period. The Stability Programme, which Germany produces in
mid-April along with other euro-area countries, includes multi-year projections for the
public forecasts, consistent with the benchmark figures. For domestic planning purposes,
the primary reference document is the Financial Plan which is traditionally produced as part
of the annual budget process, and which plays a key role in ensuring continuity of medium-
term fiscal planning from one annual budget cycle into the next.
The production of the Financial Plan is required under the 1967 Act to Promote Economic
Stability & Growth, and contains fiscal projections and plans for a five-year period – the
current year, the upcoming budget year, and the following three years. The Financial Plan is
adopted by the federal government and submitted to parliament alongside the draft budget
in August each year.
The Financial Plan, coming late in the budget formulation process and submitted
formally to parliament, is a living policy document drawing together a number of separate
but related strands of budgeting that concern the multi-annual dimension. The multi-year
allocations from the government’s benchmark figures decision of March are repeated,
adjusted and updated as necessary to reflect developments and negotiations. The
underlying figures at line-item level have, by the time of the Financial Plan, been settled at
the official level for the full five-year period of the Plan and for the upcoming budget year.
They are identical with the budget approved by cabinet at the same time. 
The overall fiscal aggregates in the Plan must also be consistent with the requirements
of the fiscal rule. Article 115 of the Basic Law requires that the annual budget comply with
the debt brake rule; while this requirement does not apply formally to the Financial Plan
itself, this is a 
de facto
requirement. To achieve this objective, the Plan must be negotiated
by the Federal Ministry of Finance with line ministries, in a manner that takes account of

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existing and developing priorities including their multi-annual cost implications. The
multi-year expenditure projections brought forward from the previous year’s budget cycle
(including through the benchmark figures decision in February/March, the Stability
Programme projections from April and through to the draft budget itself) must therefore
also be aligned with the overall multi-annual fiscal constraints. These multi-annual
projections in turn form the basis for the subsequent year’s budget formulation process,
which gets underway shortly after the Financial Plan itself is published. In this manner, the
“opening position” for expenditure in each line ministry will be consistent with the fiscal
rule, subject to economic forecast changes that may require a recalibration of the budgetary
aggregates.
The above approach is distinct in some respects from the type of medium-term
expenditure framework or multi-annual ceilings that are used in other OECD countries. It
is notable, in particular, that the Financial Plan is not represented as being “binding” in any
formal sense upon the budgetary processes and decisions that come in subsequent years;
nor is the document formally approved by parliament, being presented for information
purposes only. However, in practical terms, the Financial Plan embodies a series of
decisions and commitments relating to the conduct of fiscal policy over the medium term,
and as such it shows limited scope for discretion or ambiguity. Once the Financial Plan is
laid down and agreed by government, it assumes significant influence over the shape of
future budgetary policy, unless some external “shock” disturbs the planned course.
This approach is closely related to the top-down budgeting mechanism, in that it
carries forward a profound, inherently bureaucratic momentum, and it therefore carries a
similar profile of benefits and risks. Multi-year financial planning in Germany is fixed,
clear, orderly and provides for a coherent and integrated overall approach. On the other
hand, there is a limited window of opportunity to take stock of the medium-term strategy
or to adjust multi-year budgetary allocations in line with evolving priorities. Moreover,
there are no clear incentive mechanisms for ministries to be innovative and proactive in
identifying savings since they cannot readily retain any such savings for their own net
benefit (see next section).