ANALYSIS OF THE WEST GERMAN BUDGET FOR 1956

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80-00809A000700260106-4
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 6
• Document Creation Date: December 22, 2016
• Document Release Date: July 15, 2011
• Sequence Number: 106
• Publication Date: October 31, 1956
• Content Type: REPORT

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STAT
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ANALYSIS OF THE EAST GERMAN BUDGET FOR 1956
(Comment: This report presents an analysis of the East Ger-
man budget for 1956, as published on 25 December 1955 in Wochen-
bericht des Deutschen Instituts firer WirtschaTtaaifS Chtmg, -the
weekly report of the German Institute for Economic Research) a West
German organization devoted to the conduct of economic research,
located in Berlin.]
The East German b~,dae~ encompasses all aspects of life and economy, to a
much larger degree tcian do toe budgets of Western countries. It comprises all
profits and losses of the nationalized industries, which constitute about 85
percent of all industry, and tr.- 100?percent nationalized (state-owned) bank-
ing insurance, and wn_lr:ale trading enterprises. It also covers the whole
field of social welfare, including the social insurance budget. In addition,
it contains all funds, s,th as consumption tax receipts and price subsidies,
which appear within the fraza:-work of government price regulation.
Furthermore, as a result of the prevailing form of state financing, the
bulk of all investments, tamely those of the nationalized sector, are contained
in the budget. Even the s?-called "capital. market investments" of the private
sector are listed at lest in the appendix of the budget,
Unfortunately, the law on the Budget Plan for 1956 furnishes only the usual
over-all figures for the individus.i budgets of the national administrations of
the Bezirke and for social insuramce. The voluminous explanations and interpre-
tations of the budget. p:blisced in various sources, furnish little additional
information.
However, by combining kn:.ledge of financial procedures of previous years,
the few absolute figures given, and the ample supply of percentage figures, it
is possible to describe the moet important aspects of the national financial
picture.
Public Revenues
In the budget For 1956, the first significant point is that its volume is
about one billion UM 1':wer t!an Last yeer even though the Economic Plan for 1956
provides for an 8-percent production increase within the industrial sector, the
main area of the state-owned (nationalized) economy. A certain expansion of
public finance would appear ta,:re likely, though not necessarily one proportionate
to the industrial expansion
Commentators in Fast Germ ny pl,ce great emphasis on this phenomenon. They
stress the fact that the increasing profitability of the people-owned economy re-
lieves the treasury of the ot11gstion of paying high subsidies to deficit enter-
prises and claim that this, in turn, despite a reduced budget,permits increasing
expenditures for investment purposes.
The profitability -f a nomher of enterprises actually may have improved as
a natural development c?f ;vercoming initial difficulties. However, a correct
interpretation of the statistics themselves points to many other factors equally
responsible for the reduction. in the size of the budget.
The grand total of b,,dpet receipts dropped to 37.1 billion DM from the 1955
plan figure of 38.2 billion IR?i, which was almost exactly matched by actual reve-
nue. The net figures show a reduction from 35.6 billion DM to 34.9 billion DM,
after elimination of all duplicate entries through mutual clearing operations
covering the national (state) budget, the Bezirk budgets, and the social insur-
ance system.
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 ~Owever,in view ct' the relatively slight increase of 5 percent in retail
trade turnover provided for in the Economic Plan, and in view of the practically
unchanged price level of retail prices, an increase in excise taxes of well over
500 million D14 is probable; the latest figure on total return from these taxes
amounted to 12.4 billion tM. On the other hand, there is likely to be a reduc-
tion of at least one billion DM in the actual yield from excise taxes because,
as of 1 January 1956, no more production taxes will be levied for export orders;
the policy has been that the taxes must be paid first, but are afterward reim-
bursed through the price-equalization provisions for export. trade. Therefore,
the net result will probably be a reduction of about 500 million DM in the re-
turn from excise taxee.
Additional receipts expected from the private sector of the economy and
from wage taxes, however,, are to amount to about 350 million DM; hence, total
tax revenue should remain about the same as,last year.
No amount is given for "other receipts"; these include administrative re-
turns as well as receipts from public institutions, etc. Last year this item
must have contained an amount of about 700 million 'DM in credits; hence, it is
likely to be lower this year than last. In 1955, the comparable amount of re-
ceipts from the people-owned economy, therefore, must have been a few hundred
DM lower than in the preceding year.
There is, however, still another aspect of the picture to be considered
in this connection. In 1955,, according to the rules concerning the financing
of people-owned enterprises, each plant has been given the opportunity, within
certain limits, to finance its own investments from its own working capital.
The Budget Plan for 1956 sets aside 819 million DM for this purpose, out of
which about 800 million D14 is earmarked for investments, as compared with last
year's 530 million D14 Thus, though the payments to the state-budget will be
correspondingly reduced, the same surpluses as last year seem to be expected
from the enterprises, in spite of the scheduled increased in production.
The figure for receipts from social insurance is 200 million DM lower.
Here again, the information is unfortunately so inexact that it is impossible
to ascertain which part of these receipts is based on membership contributions
and which part on state subsidies, such as annuities for war victims, etc.,
which are paid out through the social insurance system by the state. The plan
for 1955 lists the clearing accounts to be settled between social insurance and
the state at 1,060.000,000 Ixd. No specific amount is mentioned for 1956, but
calculations based on other figures reveal a sum of 650 million DM; this amount
also contains paymenta '.,y the social insurance system to the state.
Since an expansion of the labor force during the current year can hardly
be expected, an increase in membership contributions to social insurance is im-
social insurance system allegedly did not cover the required payments and led
to a deficit of 280 million DM.
The structure of the main expenditure groups has changed little. Includ-
ing the clearing account of 650 million DM with the social insurance system --
a figure which is the same both in the revenue and in the expenditure section
of the budget -- total expenditures for 1956 amount to 35.5 billion DM. This
which included a clearing account of 1,158,000,000 DM with the social insurance
system (Plan for 1955: 1,056,000,000 DM).
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According to the nadget Law the people-owned economy receives contribu-
tions amounting to 5,240,000,000 DM from the state budget. These funds are to
be spent for investments, deficit financing and price supports, subsidies of
working capital, and other expenditures of the people-owned economy. Of the
4,540,000,000 DM in ststc??financed investments, an amount of 3,890,000,000 DM
goes to the people- wned economy and about 600 million DM is allocated for res-
idential construction. Investments financed by the enterprises themselves,
amounting to 398 million Dtd, have to be added to the investments of the people-
owned economy; however, they come out of the earnings of people-owned enter-
prises, and payments made by these enterprises to the state budget will be re-
duced correspondingly.
The investments pi=?nned for people-owned residential construction in 1955
seem to have been approximately realized. Residential construction in 1956 has
been transferred to s large extent to cooperatives for residential construction
which were financed under the Long-Term Credit Plan. The Long-Term Credit Plan,
for which the Budget Law of 1956 stipulates an amount of 1,770,000,000 DM (plan
for 1955: 1,370,000,000 ir4 provides not only for the financing of cooperative
and private residential construction, but also for the financing of investments
for rationalization of people-owned enterprises (1955 actual: 100 million DM;
1956 plan: 250 million DM), for the bulk of the investment in the LPG5 (agri-
cultural producer cooperstives) (1955 actual: 290 million DM: 1956 plan: 347
million DM), and for investments in private agriculture (1955 actual: 64 mil-
lion DM,
' 1956 plo.:,i 10, mialion DM).
Further denund iknvwn amount, have been made on the Credit Plan
1955 by private ind h this was done on the basis of a privilege, granted
in 1953, which enti*.1.ed ."s sector of the economy to use 25 percent of its
earnings, tax-free, for _ovystmerits. This privilege will be almost completely
abolished in early 197,0; ;he current Long-Term Credit Plan, therefore, probably
provides only en insignificant amount for private industry, in view of the pre-
vailing trend in ec,= m1c policy which tends to
vate sector of there prevent all growth in the pri-
In addition t_, *.. ebove-mentioned sources of investment financing, amorti-
zation payments made by the enterprises to the German Investment Bank are also
drawn upon; these f:;nds are used mainly for replacements and general repairs.
The size of these am,,rt:z.,tion funds must not be overestimated since the rates
of amortization, which arr? fixed by the state, are relatively low.
According to sia tic 147 of Neues Deutschland of 1955, total investments
for
inves195ments5 ': :Ltrd at 5.1 billion DM. In 1956, the state's share in
39.7 percent, from 4.9 billion DM to 6.8 billion DM.
Deducting Lh~ st t-..financed investments of 3,890,000,000 DM from the
5,240 ' 000,000 DM prceied for the people-owned economy leaves 1,350,000,000 DM
for the deficit and pr:>e supports for the people-owned economy and other ex-
penses, including 2j.: DM in subsidies of working capital.
This amount i~ -.,t specified in the budget for 1955; the fi
lower in the plat. for 191.;6 than in that f 1 Sure is much
sidies to private pe s:y?a:.3 in the form of increased priceseforyagriculturaluprod-
ucts they sell to the u'rrr.rnruant.. cnn +a,...
siderable redacti.,n r. tt, rrL,iher of deficit 955, supposedly because of the con-
[unprofitable) enterprises. r
~un++ iaso year. Of this figure, 25
Million DM is provided for supplementing the fixed, movable, and animal inventory
of those underdeveloped.fs.rms which we,o + e ._ __ _
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The following tatle shows expenditures according to the Budget Plan for
1956 as compared with planned and actual expenditures in 1955 (in million DM):
1955
Plan Actual 1956 Plan
Investments, people-owned economy 2,250
Investments, people-c'waed residential 3,135 4,540
construction, and n*.ners 784
Subsidies, people-cwn,:d scenaIly
2,042
--
1,350
Agriculture and fo.res -y, incl expendi-
tures for MTS
3,724
3,246
3,765
Price equalization, for-ign trade
3,823
--
--
Materials reserve
129
--
3,090
Education, science, c a r:re; promotion
of youth, sports
Social welfare and henl.th
1,327
Social insurance
5,888
--
5,713
State administration
2,690
2,600**
2,700**
Ocupation costs*
1,843
--
1,780
Debt redemption sad interest payments
450
--
126'
Other expenditures
7,006
6,200
Total
35,597
35,615
34,862
Duplicate entries
2,541
--
2,251
Surplus
29
82
23
Grand Total 38,167 -- 37,136
* According to t!a~- plan, always 5 percent of total annual receipts.
** Estimated
To what extent price equalizations for foreign trade have actually been
used in 1955 remains .nku-,wn; the planned amount was 3.8 billion DM. As ex-
plained before, it is :ertein that this item has been considerably reduced in
the plan for 1956; at 'tut, it was fixed at 3 billion ON. The amount of 3,090
illi
i
m
on DM
n the preceding table of expenditures contains, in all likelihood,
an increased amount fir the materials reserve of the state.
y` Next to the expenditures for the development of the economy, a large part
welfare, health education, art and science, the promotion of youth activities
a
1+
nd sports (195
, 30.8 percent; 1955, 30.5- percent; 1956 plan, 32.5 percent).
For the budget account in 1955, only an over-all figure of 10.8 billion DM is
given, which, incidentally; is only 14 million DM below the planned amount.
Over-all expenditures for 1956 have been increased by 500 million DM.
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A specially earmarked reserve of 68 million DM planned by the social in-
surance system for 1955 was not established; this is probably due to the in-
creased drain on social insurance because of a further i
ncrease in sickness.
Up to 1954, receipts for social insurance did not cover expenditures; now, an
earmarked reserve un)unting to 180 million DM is planned for 1956; East Ber-
lin has to contribute just under 7 million DM to this fund to be paid out of
its own budget to the Berlin Insurance Agency.
In addition to tho expenditures for social insurance, which total 5,713,00}000
DM, the budget is a.