UPDATE: German Lower House Approves Government's 2009 Budget

UPDATE: German Lower House Approves Government's 2009 Budget
   (Adds comments, details)  

BERLIN -(Dow Jones)- Chancellor Angela Merkel's government Friday secured lawmakers' backing for its 2009 budget, which foresees an annual 2.4% rise in spending for next year and higher debt.

But economists argue the budget is based on over-optimistic assumptions for growth of 0.2%, given the economic crisis and rising unemployment in Germany.

"It's relatively obvious that there are downside risks for the budget," said Commerzbank AG economist Ralph Solveen, pointing to likely lower revenues and higher spending due to the weak economy. He forecasts Germany's economy will shrink 1.2% next year.

Merkel is facing mounting calls to do more to boost the economy in addition to the EUR32 billion in fiscal stimulus, or 1.3% of gross domestic product, that the cabinet recently approved for the next two years.

Economics Minister Michael Glos Friday called on his cabinet colleagues to cut taxes.

"Doing nothing can be just as expensive fiscally as a quick, courageous investment in growth and employment," he told the lower house of parliament in a debate on the budget. "The past has told us how fast a downturn can cause a massive hole in public budgets."

But Finance Minister Peer Steinbrueck told lawmakers that tax cuts wouldn't be fair, making the rich richer and the poor poorer because half of Germany's private households don't pay taxes.

"Loan-based fiscal stimulus packages of the past are one of the main reasons for the current recession," Steinbrueck said.

Given expectations for a severe recession in Germany, the country's public sector budgets are set to come under pressure, with the government forecasting a public budget deficit of 0.5% for next year after a balanced budget this year, provided the economy grows 0.2%.

Still, economists said Germany is in a much better starting position than France, Italy and the U.K. to deal with the crisis and implement any economic fillip because it consolidated its budget in the past.

"Germany's budget, like in all other European countries, will come under notable pressure if there is stagnation or a recession, but it will help Germany somewhat that it has leeway to implement a growth-boosting program," said Alexander Kockerbeck, an analyst at Moody's Investors Service rating agency. "Germany has eked out leeway in the past which can now be used."

The European Commission demands countries keep their budget deficit below 3% of gross domestic budget.

The budget, which was approved by 388 of the 526 votes cast, with 138 votes against and no abstentions, targets federal government spending to rise to EUR290 billion next year, while a new debt requirement is set at EUR18.5 billion, EUR8 billion more than in a previous draft. This will follow the EUR11.9 billion planned for this year.

Next year's investment volume is targeted at EUR27.2 billion.

-By Andrea Thomas, Dow Jones Newswires; +49-30-2888-410; [email protected]

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(END) Dow Jones Newswires

November 28, 2008 08:28 ET (13:28 GMT)

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