ANALYSIS OF THE EAST GERMAN BUDGET FOR 1956

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP81-00280R000200050003-8
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 7
• Document Creation Date: December 22, 2016
• Document Release Date: April 8, 2011
• Sequence Number: 3
• Publication Date: October 31, 1956
• Content Type: REPORT

CIA-RDP81-00280R000200050003-8 JJ~k
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Sanitized Copy Approved for Release 2011/04/08
CIA-RDP81-0028OR000200050003-8
 Sanitized Copy Approved for Release 2011/04/08: CIA-RDP81-0028OR000200050003-8
ANALYSIS OF THE EAST GERMAN BU13M FOP .1-956
[Comment., This report presents an analysis of the Bast Ger-
man budget for 1956, as published on 25 December 1955'in Wochen-
bericht des Deutschen Institute fuer Wirtsc e
weekly report of the German Institute Economic sears a West
German organization devoted to the conduct of economic research,
located in Berlin.]
The East German budget encompasses all aspects of life and econour, to a
much larger degree than do the budgets of Western countries. It comprises all
profits and losses of the nationalized industries, which constitute about 85
percent of all industry, and the 100-percent nationalized (state-owned) bank-
ing insurance, and wholesale trading enterprises. It also covers the whole
field of social welfare, including the social insurance budget. In addition,
it contains all funds, such as consumption tax receipts and price subsidies,
which appear within the framework of government price regulation.
Furthermore, as a result of the prevailing form of state financing, the
bulk of all investments, namely those of the nationalized sector, are contained
in the budget. Even the so-called "capital market investments" of the private
sector are listed at least in the appendix of the budget.
Unfortunately, the law an the Budget Plan for 1956 furnishes only the usual
over-all figures for the individual budgets of the national administrations of
the Bezirke and for social insurance. The voluminous explanations and interpre-
tations of the budget, published in various sources, furnish little additional
information.
However, by combining knowledge of financial procedures of previous years,
the few absolute figures given, and the ample supply of percentage figures, it
is possible to describe the most 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 DM lower than last year 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 more likely though not necessarily one proportionate
to the industrial expansion.
Commentators in East Germany place great emphasis on this phenomenon. They
stress the fact that the increasing profitability of the people-owned economy re-
lieves the treasury of the obligation 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 of a number of enterprises actually may have improved as
a natural development of overcoming 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' buudget receipts dropped to 37.1 billion DM from the 1955
plan figure of 38.2 billion 1)14, 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.
 Sanitized Copy Approved for Release 2011/04/08: CIA-RDP81-0028OR000200050003-8
Of the total receipts, the sum of 1.5.6 billion D!, as ccwparev with last
year's 13.6 billion DM, is to be obtained fro. the people-owned sector of the
economy. This amount consists of the net operating surpluses (Betriebsueoers-
chuesae) of enterprises,, as well as of all profit taxes (Zrtragesteuern), the
tuiho'ver taxes (Umsattsteuern), and the bulk of the excise taxes (excises). In
prewious years, excise taxes were levied at the tetail trade level; they were
not counted as part of the :receipts from the people-owned econoW Lut were
shown as a separate item under the heading "other taxes."
The following table shows revenues according to the Budget Plan for 1956,
as compared with planned and actual revenues in 1955 (in million Dld):
1955
Plan
Actual
1956 Plan
People-owned economy
Net surpluses (Ueberschuesse) of enter-
prises, and corporation, turnover,
business taxes
Excise taxes
Taxes and other receipts., including
and
9,017
4,638
16,015
13,566
16,231
15,622
13,557
Taxes from private sector of econonor
2,521
2,446
2,736
Cooperatives taxes
399
--
--
Wage taxes
1,320
1,219
1,279
Community taxes
834
--
--
Other receipts
2,240
--
--
Subtotal
29,670
29,797
29,179
Social insurance
5,956
5,900
5,706
Total receipts
35,626
35,697
34,885
Duplicate entries
Clearing accounts: Rep?.tblic/Bezirke
1,485
--
1,601
Clearing accounts: Nation_il budget/
Social insurance
1,056
1,158
650
Grand total (Budget Law)
38,167
--
37,136
In 1954, for the first time,, part of the budget taxes (Haushaltsaufschlaege)
were levied at the production-level and therefore shown as receipts from the peo-
ple-owned econcay; the kmrr ut was about 2.5 billion DIM. In 1955, this sum was in-
creased to 4.6 billion DM because of the introduction of production and service
taxes. Unfortunately, it is nctstated to what extent these production and serv-
ice taxes are included in the receipts from the people-owned economy in 1956.
 " lWever, In view of 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 DM is probable; the latest figure on total return from these taxes
amounted to 12.4 billion DM. 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 s1iiion DM in the re-
turn from excise taxes,.
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-3. t 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 Dl 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
EM lower than in the preceding year.
There is, however, still another aspect of the picture to be considered
in this connection: in 1.955r according to the rules concerning the financing
of people-owned enterprises, each. plant has been given the opportunity, within
certain limits, to finance its :awn investments from its own working capital.
The Budget Plar. for 1956 sets aside 819 million DM for this purpose, out of
which about 800 million DM is earmarked for investments, as compared with last
year's 530 million DM 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, t:ae 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 lis::s the clearing accounts to be settled between social insurance and
the state at 1,060,000,000 Lei. No specific amount is mentioned for 1956, but
calculations based on other figures reveal a sum of 650 million DM; this amount
also contains payments by 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-
probable. It is c.ertr%in, however, that receipts will be reduced at least by
about 200 million DMA this figure would have represented contributions from
artisan and private pnss'3,nts, whose insurance with the social insurance system
will be terminated as of 1 January 1956; they will have to take out their in-
surance with the German Insurance Agency (Deutsche Vera icherungsanstalt). This
regulation was introduced because the contributions paid by these groups to the
social insurance system allegedly did not cover the required payments and led
to a deficit of 280 mt11i*n DM.
Public Expenditures
The structure of the main expenditure groups has changed little. Includ-
ing the clearing accoi.&nt 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
amount is more than 1.2 billion DM below the comparable amount of last year,
which included a clearing account of 1,158,OO0,000 DM with the social insurance
system (Plan for 19552 1,056,000,000 DM).
 According to the Budget 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 state-financed investments, an amount of 3,890,000,000 DM
goes to the people-turned economy and about 600 million DM is allocated for res-
idential construction: investments financed by the enterprises themselves,
amounting to 398 million DM, 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 planned for people-owned residential construction in 1955
seem to have been approximately realized. Residential construction in 1956 has
been transferred to a 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 DM), 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; 1CO million DM;
1956 plan: 250 million DM), for the bulk of the investment in the LPGs (agri-
cultural producer cooperatives) (1955 actual: 290 million DM: 1956 plan: 347
million DM), and for investments in private agriculture (1955 actual: 64 mil-
lion DM; 1956 plan. ~ 105 million DM)
Further dem3nd.s.? in a:.i unknown amount, have been made on the Credit Plan
in 1955 by privat.- ind-.uet-y; this was done on the basis of a privilege, granted
in 1953, which entitlt-i this sector of the economy to use 25 percent of its
earnings, tax-free, f!r investments. This privilege will be almost completely
abolished in early 1956; the current Long-Term Credit Plan, therefore, probably
provides only en instgnificaz:t amount for private industry, in view of the pre-
vailing tren.. in eccun3mic policy which tends to prevent all growth in the pri-
vate sector of the ononr
In addition to the Bove-mentioned sources of investment financing, amorti-
zation payments made by the enterprises to the German Investment Bank are also
drawn upon; these Bands are used mainly for replacements and general repairs.
The size of these amortization funds must not be overestimated since the rates
of amortization, which ere fixed by the state, are relatively low.
According to issue No 147 of Neues Deutschland of 1955, total investments
for 1955 have been.estim3ted at 5.1 billion DM. In 1956, the state's share in
investments is to incre-se 39.7 percent, from 4.9 billion DM to 6.8 billion DM.
Deducting the state-financed investments of 3,890,000,000 DM from the
5,240,000,000 DM provided for the people-owned economy leaves 1,350,000,000 DM
for the deficit and pie supports for the people-owned economy and other ex-
penses, including 256 mil.lton DM in subsidies of working capital.
This amoant is ^.ot specified in the budget for 1955; the figure is much
lower in the plan- for 19`,6 than in that for 1955, supposedly because of the con-
siderable reduction in the number of dificit [unprofitable] enterprises.
The bulk. of the expe.nditures for agriculture and forestry goes into sub-
sidies to private persAn..ts in the form of increased prices for agricultural prod-
ucts they sell t::, the i vernment collection agencies in excess of their compul-
sory delivery quotas- in addition, there are MTS expenses (1955 plan, 764 mil-
lion DM, actual. 799 million DM; 1956 plan: 839 million DM), The subsidies
planned for LPGs in 1956 are also contained in this item; they amount to 96 mil-
lion DM in 1956, which is 46 million DM more than last year. Of this figure, 25
million DM Is provided f;Dr supplementing the fixed, movable, and animal inventory
of those underdeveloped farms which were transformed into LPGs from. so-called lo-
cal agricultural enterprises.
 The following tatle shows expenditures according to the Budget Plan for
1956 as compared with planned and actual expenditures in 1955 (in million Eli):
Investments, people-:_w_ed residential
construction, and otn rs
Subsidies, people -d _.canoW
Agriculture and foresr.rv,, incl expendi-
1955
Plan Actual 1956 Plan
3,135 4,540
784
2,042
tures for. MTS 3,724 3,246 3,765
Price equalization,, Y~~r:Wign trade 3,823 --
Materials reserve 129 -- 3,090
Education, science,, e irrae, promotion
of youth, sports 3,641 -- 5,598
Social welfare and heal.t.n 1,327 10,842 --
Social insurance 5,888 -- 5,713
State administratict, 2,690 2,600** 2,700**
Ocupation costs* 1,843 -- 1,780
Debt redemption and 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.i., plan, always 5 percent of total annual receipts.
** Estimated
To what extent price equalizations for foreign trade have actually been
used in 1955 remains the planned amount was 3.8 billion DM. As ex-
plained before, it is -.r;..in that this item has been considerably reduced in
the plan for 1956; at -nowt, it was fixed at 3 billion DM. The amount of 3,090
million DM in the preced1.ng table of expenditures contains, in all likelihood,
an increased amount, f:;r the materials reserve of the state.
Next to the exporndita es for the development of the econouy, a large part
of the total is spent on planned expenditures in the fields of labor, social
welfare, health, educ.::tion, art and science, the promotion of youth activities
and sports (1954, 3:-6 percent; 1955, 30.5 percent; 1956 plan, 32.5 percent).
For the budget acccn)ct in 1955, only an over-all figure of 10.8 billion DM is
given, which, incidentallvw is only 14 million DM below the planned amount.
Over-all expenditures .:,~ 1956 have been increased by 500 million DM.
 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 increase in sickness.
'Up to 1954, receipts for social insurance did not cover expenditures; now, an
earmarked reserve amounting 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 t3 the expenditures for social insurance, which total 5,713,CUp( )
DM, the budget is debited, for the first time, with a subsidy of 108 million DM
for the German Insurar.ce Agency; this was necessitated by the previously men-
tioned change in the fnrni of insurance for private crafts and 'trades enter-
prises.
Expenditures fir state administration have been almost constant for sev-
eral years; in 1955 they are said to have been somewhat lower than in the pre-
ceding year. With rF:gard to occupation costs, it was officially announced in
August 1953 that, s?*.-.r*,:i.ng in 1954, they would amount to 5 percent of the gross
receipts of the natio:-ie,l budget. Hence, the occupation costs of 1,843 million
DM in 1955 must have been above the amount of the preceding year, while the
costs are supposed tn th- lower in 1956 because of the reduction in the size
of the budget, according to plan. It is doubtful whether this schematic lower-
ing of the planned amount will actually lead to smaller withdrawals; it should
be noted that the am~urt paid out as occupation costs has never been mentioned
in the last few year, while it certainly would have been published if it had
been 'below the planr.La figure.
Interests on pr,:-.r7r Credit claims (Uralt Guthaben), which were planned at
227 million DM for 1955. will not come due again before 1958; the amount for
redemption and into:r-i~.t payments provided for in the 1956 plan will therefore
be considerably relc~w lest yeAxls plan figure.
The budget items wLic:h have so far been discussed add up to an amount
which is below the figure for total expenditures (not including duplicate en-
tries) by 7,006,oooaooo OM for the 1955 Plan and by 6.2 billion 1*4 for the
1956 plan. These residual amounts cannot be further itemized.
For 1956, it was 'fficially announced that 975 million DM will be needed
"for expenditures c'nnected with the organization. and support of the National
People's Army." N thing has been published on the extent of the costs of arm-
ing and equipping tit azmW These probably consist in the main of additional
exports in payment f_._ Soviet deliveries. They are doubtlessly covered by the
above residual amounts., -is are the costs of the Soviet-German Wismut Enter-
prise. There should slso be a place in these residual, unspecified amounts
for the type of in-r tme.nts which are needed for military purposes; because
East Germany certainly- has no interest in offering a detailed presentation Cr
such items.