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Balanced budgets:
Both the federal and 
Länder
governments must balance revenues
with expenditures in their budgets, as a fundamental principle. In normal economic
circumstances (i.e. when the output gap is closed), “balance” is assumed to be met for
the federal government when net borrowing does not exceed 0.35% of GDP. (This is
approximately a threefold reduction in the latitude for borrowing, as compared with the
former golden rule.) There is no such latitude in normal times for the 
Länder
. 
●
Symmetrical adjustments over the economic cycle:
Automatic stabilisers will operate
freely and fully over the cycle. In other words, cyclical deficits may be run in a downturn,
and cyclical surpluses must be run in an upturn. The technical determination of the
stage in the economic cycle is handled in line with EU methodologies, and is dealt with
(for federal purposes) under an Act and a technical ordinance. The 
Länder
make their
own implementation arrangements.
●
Underlying, not artificial, budget position:
“Financial transactions” within government,
such as the sale of an asset yielding one-off revenues, must be netted off from the
figures so that the true underlying budget position is used.

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BUDGET REVIEW: GERMANY
OECD JOURNAL ON BUDGETING – VOLUME 2014/2 © OECD 2015
30
However, the starting-point for Germany in establishing its fiscal policy stance each
year is not the new EU governance rules 
per se,
but rather the “debt brake” rule which was
incorporated into its Basic Law in 2009 (see Box 6). The rule was the centrepiece of a package
of fiscal-responsibility reforms introduced at the time, including federal assistance for
progressive budget consolidation in the 
Länder
(see Section 2.3 below). In essence, the debt
brake requires that budgets (for 
Länder
and the federation alike) be balanced, in structural
terms. For the federation, “balance” entails latitude for borrowing to an upper limit of 0.35%
of GDP; the 
Länder
have no such latitude.
Similar to the debt brake rule used by the Swiss Confederation, compliance with the
balanced-budget requirements is supposed to be effected 
ex post,
as well as planned for
ex ante,
through the use of a “control account” which logs deviations from public finance
targets and which must be reduced according to an amortisation schedule. While the
control account is a strictly notional device – it does not hold or owe funds but merely
records the deviations from the maximal permissible structural net borrowing – it
should in principle be influential in setting the outlines of fiscal policy from year to year.
However, it remains to be seen how effective this aspect of the framework will be in
practice. Over recent years, the control account has in fact accumulated a large surplus
(of around EUR 85 billion in 2013) reflecting better-than-forecast public finances. Partly
to address this matter, a federal law was introduced on the initiative of the government
in 2013 to drain the control account of its large surplus at the end of the transition
period in 2015 (see Box 6). As of now, the debt brake commands respect among policy-
makers across the public administration as a binding constraint upon fiscal policy, and
as such lays a firm framework for the development of the annual budget and medium-
term planning. However, there are a number of aspects of the operation of the debt
brake that will need to be monitored closely over the coming years, as outlined in
Section 2.4 below.
Box 5.