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After long negotiations: This is what the agreement on the budget and growth package means

After long negotiations: This is what the agreement on the budget and growth package means
After long negotiations: This is what the agreement on the budget and growth package means

Shortly before the summer break, the heads of the federal government have achieved a breakthrough. The basic political principles of the budget have been agreed, and the economy is also to be stimulated. What’s in it?

It was once again a marathon negotiation. But early in the morning, Chancellor Olaf Scholz (SPD), Finance Minister Christian Lindner (FDP) and Economics Minister Robert Habeck (Greens) achieved a breakthrough. After difficult talks, there is now a basic agreement on the 2025 federal budget. The federal government is also planning a growth package.

Debt brake is adhered to

The debt brake anchored in the constitution must be adhered to. It allows new debts to a limited extent. This is a point win for the FDP. It has fended off all demands, especially from the SPD, to make an exception to the debt brake because of the financial burdens caused by the war in Ukraine.

Relief package aims to boost growth

Only minimal growth is expected in Germany this year. Companies are holding back on investments, and private consumption is not picking up either. The government wants to counteract this and is planning comprehensive relief measures to stimulate the economy. According to the government’s estimates, the growth package could lead to additional growth of more than half a percent next year, which would be 26 billion euros in additional economic output.

This is planned for companies

There will be accelerated depreciation of investments and an improved research allowance. The traffic light coalition also wants to reduce bureaucracy. Mandatory practice checks are to be introduced in all ministries. Data protection is to be “streamlined” in order to relieve the burden on small companies in particular. The European supply chain directive is to be quickly implemented into national law. The main aim is to reduce reporting obligations, as a German law already exists.

This is planned for employees

Incentives for more employment – that is the aim of the traffic light coalition in view of the growing shortage of skilled workers. More employment also means that the burden on social security funds is reduced. Habeck stressed that stimulating the labor market has “the greatest growth potential.”

Working beyond retirement age should become more attractive. The employees affected should receive their employer’s contribution to unemployment insurance and partly also to pension insurance in the future. Foreign skilled workers will be granted a tax rebate in the first three years of their employment in Germany.

Tax exemption for overtime

To make overtime worthwhile, the government wants to make extra pay for additional work that goes beyond the full-time hours agreed in the collective agreement tax-free and exempt from contributions. Full-time work is defined as a weekly working time of at least 34 hours for collective agreements, and 40 hours for working hours not specified or agreed in the collective agreement. The federal government also wants to create a new tax incentive to extend the working hours of part-time employees.

Easier employment for foreigners

The coalition also wants to target foreign applicants for work: in future, immigration offices will only have 14 days to reject a foreigner’s application to work in Germany – otherwise the job will be considered approved.

This is planned for the unemployed

One and a half years after the introduction of the citizen’s allowance, the coalition wants to tighten the duty to cooperate. Anyone who is available to the job market at short notice will have to report to the Federal Employment Agency once a month. Rules on the reasonableness of the work offered will be further developed.

The waiting periods for protected assets are to be halved – currently, in the first year of receiving citizen’s allowance, there are increased allowances for assets and the suspension of checks on accommodation costs. However, if long-term unemployed people leave citizen’s allowance with a job, they should keep significantly more of their earnings in the first year without this being counted towards housing benefit, for example.

This is planned for families

The child benefit supplement for needy families in the citizen’s allowance is to be increased by five euros next year. This amount is to rise from the current 20 euros to 25 euros and will expire with the introduction of basic child benefit, according to a paper seen by the dpa. The child benefit that all parents in Germany receive per child will then rise to 255 euros per month, according to the agreement.

There are also changes to the child allowance. As the paper further states, this is to be increased by 228 euros to 9,540 euros this year. Next year it will be increased by another 60 euros to 9,600 euros. The allowance is deducted from taxable income and therefore reduces tax for families.

Tax relief

According to Lindner, citizens will receive tax relief totaling 23 billion euros over the next two years. The comprehensive relief will be made possible by increasing tax allowances, changes to wage and income tax, and shifts in the solidarity surcharge.

This is planned in energy policy

There is to be a system change in the expansion of renewable energy from wind and solar. A switch to investment cost subsidies is planned. Up to now, operators have received a fixed feed-in tariff. The federal government has also paved the way for a strategy to build new gas-fired power plants – in future, they are to step in during “dark lulls” when the sun is not shining and the wind is not blowing. The state wants to promote construction.

The billions of euros in costs for promoting green electricity, which have so far come from the Climate and Transformation Fund (KTF), are to come from the core budget in the future – this will relieve the financially strained KTF, which finances climate protection funding programs such as the replacement of heating systems. Cuts were feared in the Ministry of Economic Affairs and Climate Protection.

Incentives for more electric company cars

After the government stopped subsidizing the purchase of electric cars, new registrations have plummeted. The government is now planning tax incentives to encourage more companies to buy electric cars as company cars.

No cuts to motorways

There will be no savings at the federally owned Autobahn GmbH – that was on the table, associations had warned of delays in bridge renovations with consequences for motorists. Lindner also said that the federal government is examining new investment options for the railway and the Autobahn company – this involves loans.

Supplementary budget planned

According to Lindner, the motorways will receive an additional 300 million euros this year – this is one reason for a planned supplementary budget. In addition, there are higher costs for promoting renewable energies and higher expenditure on citizens’ income. The supplementary budget is expected to have a volume of 11 billion euros. Because the economy in Germany is weaker than expected, a mechanism in the debt brake allows for greater net borrowing.

Key data on the 2025 budget

Expenditure of 481 billion euros is planned for next year, of which 57 billion euros will be investments. As part of the debt brake, debts of 44 billion euros are to be incurred.

Traffic light creates room for maneuver

Most recently, there was reportedly a hole of 10 to 15 billion euros in the budget planning that had to be closed. Lindner said that every stone in the budget had been turned over to reduce expenditure.

In order to reduce the pressure on departments to save money, the traffic light coalition also found ways to gain additional leeway, according to government sources. One option mentioned was a “more realistic estimate” of EU contributions. This would include lower interest payments, for example, and the posting of individual budget items could be postponed. Budget planning is based on many assumptions, but these could change – for example, if the economy worsens and tax revenues are lower.

Lindner also spoke of a global reduction in spending of 16 billion euros. These are savings targets that have not been specified in detail. This reduction in spending is to be reduced to 8 billion euros – also by enabling Deutsche Bahn and Autobahn GmbH to take out loans.

Budget still far from being finalised

The cabinet is due to approve the draft budget in mid-July – then the many details on the individual departments will be available. The first debate in the Bundestag is planned for mid-September, and the budget is then due to be approved in November or December – but there are already calls for improvements, especially from the SPD and the Greens. So it remains exciting.

Source: Stern

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