Finances: Starting signal for the 2025 federal budget with a billion-dollar gap

Finances: Starting signal for the 2025 federal budget with a billion-dollar gap

After the budget dispute is before the budget dispute. At least that is to be expected when the traffic light coalition now negotiates the budget for 2025. Opposites collide again.

Here we go again: just a few weeks after the hard-fought decision on the federal budget for the current year, the haggling over the budget for 2025 has begun. Finance Minister Christian Lindner wants to set strict limits for his ministerial colleagues this time – because there is already a billion-dollar gap in the plans. His ministry is calling on all departments to make suggestions for savings.

In a meeting led by the new Budget State Secretary Wolf Reuter, the ministries agreed to present their plans by April 19th. Lindner warned in a letter that was available to the German Press Agency that everyone had to pull together. “It will require a concerted effort by the federal government to resolve the need for action in the federal budget,” he wrote. The need for action describes a billion-dollar gap, which, according to the Ministry of Finance, amounts to a double-digit billion amount even without additional requests.

Will the negotiations be as tough as last year?

In any case, it shouldn’t get much easier – even if there is no surprise effect. Last year, the Federal Constitutional Court’s ruling just days before the planned budget resolution completely disrupted an already difficult process.

This time everyone is prepared for a tough fight right from the start. “Germany is facing major economic and financial policy challenges,” warned Lindner. The economy is developing weakly and the years of crisis have left big holes in the budget.

Householders then talk about the need for consolidation. Some put it at 15 billion euros for 2025, others at 25 billion euros. The Ministry of Finance said that relief from higher income is not to be expected either. The persistently weak economic situation is now also having an impact on tax revenues.

How does Lindner want to assert himself?

Last year, Lindner even involved Chancellor Olaf Scholz in the stalled talks with the ministries because they did not want to embark on austerity measures. This time the FDP leader is tackling the process differently from the start. The preparation of the budget will be “fundamentally different from those in previous years,” the ministry said.

The Ministry of Finance does not want to negotiate basic budget figures as usual, but rather sets spending caps for the houses straight away. The benchmark procedure is not effective this time, “since there are no additional financial resources available for distribution,” argues Lindner. The aim is to prevent the ministries from registering high demands that then have to be negotiated down. However, this cannot be completely ruled out – even if Lindner makes it clear: “If the registrations do not meet the department-specific upper limits, they cannot be accepted.”

Where are cuts coming?

Different savings methods are conceivable: For example, each department could reduce a percentage of its expenses across the board. But it probably won’t work that way, because Scholz has already made it clear that neither the defense budget nor social spending should be affected. Lindner, on the other hand, suggested a multi-year moratorium on social spending and subsidies in order to be able to invest more money in defense.

In general, investments are always easier to cut than expenses that are based on legal entitlements – such as citizens’ money. However, saving on investments can also be dangerous given the modernization backlog. Ultimately, the coalition will have to set political priorities.

How could greater scope be created?

The SPD and the Greens continue to flirt with the federal government taking out more loans. To do this, the debt brake would have to be suspended again. Many social associations and some economists are also in favor of this. They believe that such an exception can be justified by the exceptional support for Ukraine and the refugees.

The debt brake anchored in the Basic Law only provides for a very limited net borrowing, but can be suspended in the event of natural disasters or other exceptional emergencies. This was the case, for example, during the corona pandemic. Lindner and his FDP currently see no basis for this. And they warn that Germany would risk its good credit rating and burden future generations with high interest payments through new debt.

Are there any areas that could receive more money?

Defense Minister Boris Pistorius (SPD) sees a great need for investment in the Bundeswehr and wants a higher defense budget. Lindner wouldn’t be averse to that either – but only if appropriate savings are made elsewhere in the household. The finance minister also believes a new package to support the weak economy is necessary, including a reduction in the tax burden.

Economics Minister Robert Habeck (Greens) also wants to help the economy, but the two pursue fundamentally different philosophies on key issues. Lindner wants to remain within the framework of the debt brake, Habeck wants a special fund, i.e. a debt-financed special pot. In addition, the Greens tend to favor subsidies, while the FDP relies on incentives such as lower taxes. However, a tax reform will hardly receive approval from the coalition partners if the top tax rate is not addressed.

Can the dispute blow up the coalition?

Budget negotiations are always explosive because it becomes clear that the coalition partners pursue very different goals. The FDP in particular is said to have its finger on the trigger. But given the current poll numbers, all three coalition partners have to ask themselves what they would gain by ending the coalition.

It will probably be even more difficult for the coalition partners to agree on financial planning for 2028 than the budget for 2025. Because then not only does the repayment of Corona loans begin – an additional burden of around ten billion euros. The financing of the Bundeswehr – compliance with NATO’s two percent target – must then be financed solely from the budget because the special fund worth billions is expiring. How this should happen is completely open.

Source: Stern

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