Berlin’s political community breathed a sigh of relief when the traffic light coalition leadership agreed on a budget at the beginning of July. But it still contains question marks – and is now due to go to the Bundestag.
The federal government wants to officially launch its hotly contested budget for 2025 this week – although it is still not entirely clear how a billion-dollar hole can be plugged. If that does not work, it may have to be renegotiated.
First, however, a decision is planned for Wednesday in the cabinet. After that, the draft budget will go to the Bundestag, where it can still be changed and is expected to be passed shortly before the end of the year.
For weeks, Chancellor Olaf Scholz (SPD), Vice Chancellor Robert Habeck (Greens) and Finance Minister Christian Lindner (FDP) had been sitting together for hours at a time in the Chancellery. They are said to have literally turned over every stone in the budget to plug a funding gap of more than 30 billion euros. A task that is usually carried out by state secretaries at this level of detail – and which shows how serious the traffic light coalition was in the meantime. At the beginning of July, the basic agreement was reached after a marathon meeting. What happens next:
New scope 2024
For the current year, the federal government is giving itself a little more leeway with a supplementary budget. Because the economy is so sluggish, it is allowed to take on 11.3 billion euros more debt than previously thought. This is to be exploited. This will increase borrowing for 2024 to 50.3 billion euros, as figures from the Ministry of Finance show.
Most of the money will go into the so-called climate and transformation fund, which will be used to pay for the promotion of green electricity, among other things. It will also compensate for the fact that the poor economic situation means there is more need for citizens’ income and lower tax revenues. The supplementary budget is to be approved by the Bundestag at the beginning of November.
Billion dollar gap in 2025
The budget for next year should also ideally be passed by the Bundestag in November. But the coalition still has a lot of work to do here – because there is still a billion-euro gap. It is normal for the government to plan a so-called global spending cut. This is a bet that the ministries will not actually manage to spend all the money they have planned. But this time the gap priced in is particularly high at 17 billion euros.
The federal government already has ideas on how to raise 8 of the 17 billion euros – but it is not yet clear whether these are constitutionally and economically viable. Among other things, it is being examined whether billions in subsidies to the railway and the motorway company can be replaced by loans. This way, the money would not be counted towards the debt brake. If the examinations are negative, the traffic light coalition may have to discuss austerity measures again.
The budget negotiations this year were already extremely tough. Ultimately, Scholz, Habeck and Lindner agreed to comply with the debt brake enshrined in the Basic Law – a point win for the FDP, but the SPD in the Bundestag has not yet completely given up on the idea of making an exception to the rule because of the financial burdens caused by the war in Ukraine.
The Foreign Office, the Ministry of Economic Affairs and the Ministry of Development in particular had to accept cuts. On the other hand, there was an increase for the Ministry of Defense, among others – although at 1.25 billion, this was nowhere near as significant as Minister Boris Pistorius had hoped. Overall, the draft budget provides for new debt of 43.8 billion euros, which means that the scope of the debt brake is fully exploited.
Gloomy prospects for the period after
In the years after 2025, according to the Finance Ministry, budget negotiations could cause even more problems. Lindner’s department warns of a “relatively high level of budget rigidity”. A lot of money is already tied up by the population’s legal entitlements, by rising social spending in an ageing society and by quotas that must be met, such as in defense spending.
Social spending, interest and personnel already account for 62 percent of the federal budget – money that can no longer be used flexibly. In the financial planning for the years 2026 to 2028, there is a financing gap totaling 65 billion euros.
Package for more economic power also in the cabinet
A package that is intended to make the German economy competitive again and thus also generate tax revenues, for example, is intended to help. Key points for this are also to be decided on Wednesday. It is not just about accelerated depreciation of investments for companies and the reduction of bureaucracy.
Employees should be given incentives to work more and longer – for example, by having employees of retirement age receive the employer’s contribution to unemployment insurance and, in some cases, pension insurance. A tax rebate is planned for foreign skilled workers in the first three years of their employment in Germany. The government also wants to make overtime that goes beyond the full-time hours agreed in the collective agreement tax-free and contribution-free.
Families will receive a higher child allowance and more child benefit. In addition, allowances and other limits for wage and income tax will be adjusted so that citizens will save 23 billion euros in taxes in two years.
Source: Stern
I have been working in the news industry for over 6 years, first as a reporter and now as an editor. I have covered politics extensively, and my work has appeared in major newspapers and online news outlets around the world. In addition to my writing, I also contribute regularly to 24 Hours World.
