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Germany signals belt-tightening but no tax rises in budget compromise

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Germany signals belt-tightening but no tax rises in budget compromise

German Finance Minister Christian Lindner attends the weekly cabinet meeting at the Chancellery in Berlin, Germany November 22, 2023. REUTERS/Fabrizio Bensch/File Photo Acquire Licensing Rights

  • German economy shrinks slightly
  • Germany set to suspend debt brake
  • Finance minister wants significant “consolidation” in budget
  • Economy minister compares debt brake to boxing match
  • Majority of Germans oppose suspending debt brake – poll

BERLIN, Nov 24 (Reuters) – German Finance Minister Christian Lindner signalled the government would need to make savings worth a double digit billion euros to help solve a budget crisis, though data on Friday showed growth shrinking in Europe’s largest economy.

Lindner plans to lift self-imposed limits on borrowing and present a supplementary budget next week after a constitutional court ruling wiped billions from the federal budget and forced the government to freeze most new spending commitments.

The court ruling, which blocked the government from transferring pandemic funds towards green projects and industry subsidies, has sparked warnings that German companies could be starved of support to keep them globally competitive.

In order to keep backing industry, the fiscally hawkish Lindner ruled out tax rises and said savings would have to be found elsewhere, backed up by reforming the welfare state.

“We are talking about a significant additional need for consolidation,” Lindner told the Handelsblatt newspaper in an interview. “We are talking about double-digit billions, for example to implement the ambitious plans to renew the infrastructure and invest in technology.”

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“In a phase of low economic dynamism, the aim must be to relieve the burden on citizens and companies,” he added.

Chancellor Olaf Scholz’s government is set to propose lifting the debt brake, which limits Germany’s structural budget deficit to the equivalent of 0.35% of gross domestic product, by proposing to parliament an “emergency situation” for 2023.

The brake, introduced after the global financial crisis of 2008/09, was first suspended in 2020 to help the government support companies and health systems during the COVID-19 economic fallout.

Lindner had been reluctant to suspend the debt brake mechanism as his party strongly advocates fiscal discipline but relented as the budget turmoil put more strain on Scholz’s fractious three-way coalition.

HANDS TIED IN A BOXING MATCH

The crisis has sparked calls for reforming the debt brake. Economy Minister Robert Habeck from the pro-spending Greens has criticised it as inflexible and as blocking vital support for industry to keep jobs and value creation from moving abroad.

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To a standing ovation at a Greens party conference, Habeck questioned whether the debt brake was applicable in changed times from “when climate protection was not taken seriously, wars were a thing of the past, China was our cheap workbench?”

“With the debt brake as it is, we have voluntarily tied our hands behind our backs and are going into a boxing match. Is that how we want to win it? The others have horseshoes wrapped in their gloves and we don’t even have our arms free. It’s clear how that’s going to turn out.”

A poll by the broadcaster ZDF suggested only a minority of Germans, 35%, supported suspending the debt brake however, compared to 61% wanting it to stay in place.

Some 57% wanted the budget shortfall from the court ruling to be covered by spending cuts, 11% favoured tax increases and 23% wanted the state to take on additional debt.

Germany has been among the weakest economies in Europe this year as high energy costs, weak global orders and higher interest rates have taken their toll. Its economy shrank in the third quarter, data showed on Friday.

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German business morale however improved for a third straight month in November, the Ifo institute said, adding there had been no impact for the time being from the court ruling.

“The question that naturally arises is whether the rise in the Ifo business climate index is merely a flash in the pan or marks a turn for the better? We don’t really want to believe it,” said VP Bank Chief Economist Thomas Gitzel.

Potential austerity measures resulting from the court decision “are not exactly contributing to greater confidence in future economic development,” added Gitzel.

Reporting by Holger Hansen, Christian Kraemer, Miranda Murray and Rene Wagner; writing by Matthias Williams; Editing by Toby Chopra

Our Standards: The Thomson Reuters Trust Principles.

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Personal finance guru Dave Ramsey warns over 'mind-blowing' Christmas debt

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Personal finance guru Dave Ramsey warns over 'mind-blowing' Christmas debt

Holiday spending is putting a big strain on American wallets and leaving some in debt well past the holiday season; however, personal finance expert Dave Ramsey said ‘mind-blowing’ debt can be avoided.

“The average over the last several years has been that people pay their credit card debt from Christmas into May,” The Ramsey Solutions personality shared during an appearance on “Fox & Friends” on Wednesday. “So it takes them about half the year to come back, and because they don’t plan for Christmas… it sneaks up on them like they move it or something.” 

According to a study conducted by Achieve, the average American will spend more than $2,000 for the 2024 holiday season, breaking down the outflow of cash into travel and holiday spending on hosting parties, food, clothing, and other gifts.

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STOP OVERSPENDING OVER THE HOLIDAYS AND START THE NEW YEAR OFF FINANCIALLY STRONG

Another recent survey by CouponBirds indicated that parents will spend an average of $461 per child and that 49% of parents will go into debt to pay for this Christmas. 

Ramsey Solutions’ Dave Ramsey says “you won’t overspend” if you stick to a Christmas budget. (Getty Images)

The Ramsey Solutions personality balked at the amount of money shelled out for the season while explaining that the holiday should not come as a shock, and that spending for it should be planned out. 

“Those numbers are mind-blowing when you look at the averages there. That’s a lot of money going out,” Ramsey added, “all in the name of happiness comes from stuff, and it doesn’t.”

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He also weighed in and agreed on advice from fellow expert, Ramsey Solutions personality and daughter Rachel Cruze, who suggested making a list of people to shop for and noting how much to spend on each.

“You know, I’m old, and I met a guy from the North Pole,” the expert joked. “He said ‘make a list and check it twice,’ so Rachel’s right.”

Ramsey followed up by expanding on his daughter’s suggestion: “If you do that, and you put a name beside it, and then you total up those dollar amounts, you have what’s called a Christmas budget.”

“If you stick to that, you won’t overspend,” “The Ramsey Show” host remarked.

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The money guru pointed out what he sees as problematic with the holiday season – not taking a shot at Christmas itself – but referring back to the spending issues.

“The problem with Christmas is not that we enjoy buying gifts for someone else. That’s a wonderful thing,” he reassured. “The problem is we impulse our butts off, and we double up what we spend because the retailers make all their money during this season.”

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Ramsey concluded by advising shoppers to be wary of retailers and to not be ensnared by their marketing strategies.

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“They’re great merchandisers,” he warned. “They’re great at putting stuff in front of us that we hadn’t planned to buy.”

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Can AI Solve Your Personal Finance Problems? Well …

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Can AI Solve Your Personal Finance Problems? Well …
Switch the Market flag

for targeted data from your country of choice.

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Market flag for targeted data from your country of choice.

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5 smart ways to use a year-end bonus

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5 smart ways to use a year-end bonus

Are you expecting a year-end bonus? If so, you’re probably dreaming up all the ways you could spend that windfall.

The average bonus was $2,447 in December 2023, according to payroll company Gusto. That’s a sizeable chunk of change — one that could put you in a better place financially in 2025 with proper planning.

If you expect a bonus to land in your account soon, it may be tempting to splurge. And that’s perfectly fine. After all, you deserve a reward after working hard all year.

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However, before you make an impulsive purchase, consider a few ways you could use those funds to improve your financial situation.

In today’s high interest rate environment, it’s expensive to carry debt. And the higher the interest rates you’re paying, the faster that debt balance can grow.

So, consider using your end-of-year bonus to pay off some of your debts. Not only does this clear your balance faster, but it also saves you money in interest over time.

For example, say you have $3,000 in credit card debt at 21% APR. If you took 12 months to pay off that debt, you’d pay $279 per month and spend about $352 in interest (assuming you don’t make any new purchases on the card).

Now let’s say you receive a $2,000 bonus and use it to pay down your credit card balance to $1,000. In this case, you’d only need to pay $93 per month to eliminate your balance in one year. And you’d pay just $117 in interest — a savings of $235.

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Read more: What’s more important: Saving money or paying off debt?

If you’re not sure what to do with your bonus money, you shouldn’t feel pressured to use it right away. You can set it aside in a bank account while you decide. However, if your money is going to sit in the bank, you should at least earn interest and help it grow without any work on your part.

Following the Federal Reserve’s recent rate cuts, deposit account rates are on the decline. Still, there are plenty of high-yield savings accounts, money market accounts, and certificates of deposit (CDs) that pay upwards of 4% APY (or even more). Take some time to compare today’s rates and account options and put your bonus in an account that will help it grow.

See our picks for the best account options today:

It’s important to have a financial safety net in the event of a financial emergency, such as a car repair or job loss. An emergency fund can help you keep your budget intact and avoid taking on new debt to cover a surprise expense.

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It’s typically recommended that you keep enough money in your emergency fund to cover three to six months’ worth of living expenses, though you might need more in certain situations. If you don’t already have an adequate emergency fund in place, a year-end bonus could help you get started.

Read more: How much money should I have in an emergency savings account?

One of the best things you can do for Future You is invest for your golden years. In particular, retirement accounts such as 401(k)s and IRAs are a good option because you can contribute pre-tax dollars, which allows you to lower your tax bill in April (or get a bigger refund), as well as defer taxes until you make withdrawals.

For the 2024 tax year, you can contribute up to $23,000 in a 401(k), and an extra $7,000 if you’re age 50 or older. If you haven’t prioritized saving for retirement in the past, or you want to take full advantage of an employer match, you can ask your payroll department to direct some or all of your bonus to your account.

Read more: 401(k) vs. IRA: The differences and how to choose which is right for you

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As we mentioned, there’s no harm in splurging once in a while, as long as your financial obligations are squared away.

If you don’t want to feel like you’re depriving yourself, set aside half of your bonus for a “responsible” purpose and use the other half however you’d like. This can give you the momentum you need to stay the course when it comes to your financial goals, while still enjoying the fruits of your labor.

Read more: How much of your paycheck should you save?

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