Further billion-euro gap: New budget compromise – but target missed

The federal government has had a really hard time with this draft budget: countless hours of negotiations involving the Federal Chancellor, annoyed coalition partners and a package that was reopened because of the threat of a breach of the constitution. Now there is a compromise, but there are still billions of euros in the budget for next year. In the end, Chancellor Olaf Scholz (SPD), Vice Chancellor Robert Habeck (Greens) and Finance Minister Christian Lindner (FDP) failed to achieve their goal of shrinking the hole to an acceptable – and usual – nine billion.

Breakthrough just before the weekend

In the afternoon, government spokesman Steffen Hebestreit announced an “agreement on the 2025 budget”. The requirements of the debt brake in the Basic Law would continue to be complied with. This is a major concern for Lindner. The new compromise essentially provides for the reallocation of funds for the federally owned Deutsche Bahn.

Chancellor Olaf Scholz (SPD) told the German Press Agency that the federal government would today officially submit the government draft of the 2025 federal budget to the Bundestag and the Bundesrat, as agreed in July. “In doing so, we have decided to invest in transport infrastructure with additional capital and loans for Deutsche Bahn, and have made further general savings compared to the July decision.” The budget legislator can now begin deliberations on next year’s budget on time after the parliamentary summer recess.

Vice Chancellor Habeck said: “It is good that an agreement has finally been reached.” Everything else will be clarified in the next few weeks. “For me, it is crucial that we now move forward quickly with the growth initiative alongside the budget, because our economy needs impetus quickly.”

Lindner emphasized that the draft budget was constitutionally “unassailable,” viable, and focused on education, innovation, investments in roads, rail, digital networks, security authorities, and the armed forces. He also pointed to planned tax relief for citizens and companies worth billions. Lindner described the negotiations within the government in Düsseldorf as “extraordinarily difficult.” He called the remaining gap of twelve billion euros a disappointment. The gap is somewhat larger than he would have liked as finance minister. “It would be better if it were in single figures.”

Keyword underspending

According to the German government, the compromise will reduce the so-called global spending cuts by around five billion euros to around 12 billion euros. The draft budget adopted in July still spoke of a spending cut of around 17 billion euros.

A global reduction in spending is in fact a blanket savings target in the budget. The federal government assumes that the ministries will not spend all the money in the year anyway – for example because projects are delayed. This approach is quite common, but planning a double-digit billion amount as a gap is considered risky. The government assumes that this gap will be reduced, among other things, by economic development, as it announced. However, parliament now faces a relatively large task in the budget deliberations because the reduction in spending is significantly greater than usual. The budget is to be approved by the Bundestag in late autumn, with the first parliamentary deliberations planned for September.

There was already an agreement

At the beginning of July, Chancellor Scholz, Vice Chancellor Habeck and Finance Minister Lindner had already announced an agreement on the budget for 2025. They had previously struggled for weeks to close a gap of at least 30 billion euros. This should then have been achieved without overly harsh austerity measures.

The shortfall of 17 billion euros was actually supposed to be covered by around eight billion euros. In addition, there were orders to examine whether the railway and the motorway company should receive credit-financed loans instead of direct subsidies from the budget. Another issue was money from the state development bank KfW.

The role of the reports

Lindner had already made it clear after the first agreement that there were legal and economic concerns as to whether all the projects envisaged for a solution could be implemented

After two reports had partially confirmed the doubts, the coalition partners rejected the idea of ​​using 4.9 billion euros from the KfW for other purposes in the budget instead of for the gas price cap.

There was also controversy over whether the railway and motorway companies could be supported without this having to be counted towards the debt brake. Lindner and Scholz had different opinions on this – which is why renegotiations have now taken place.

More equity for the railway

Specifically, according to the government, the plan is now for the infrastructure division of Deutsche Bahn AG to receive additional equity of 4.5 billion euros – this is to replace the subsidies provided for in the previous draft of the 2025 federal budget. In addition, the railway is to receive a loan from the federal government in the amount of three billion euros. Specifically, high-interest bonds on the market are to be replaced by cheaper loans from the federal budget. This would relieve the burden on both the railway and the federal government.

Previously, an equity increase of around 5.9 billion euros was planned, which the railway would use to make investments in the renovation of the dilapidated rail network. According to the government, a total of 15.1 billion euros in investment funds are now earmarked for rail infrastructure in the 2025 budget.

For financing reasons, more equity for the railways means rising track prices – these are fees for using the rail network, a kind of rail toll. Railway associations fear that higher costs will slow down the shift of freight traffic to rail.

Further measures

Two further measures are planned to reduce the expenditure. According to the announcement, around 300 million euros will be raised through a higher payment from the energy group Uniper to the federal budget. Uniper was nationalized in the energy price crisis in 2022 in order to secure the energy supply for private households and the economy. On the other hand, the provision for the loss of tax revenue in the so-called EU energy crisis contribution will be reduced by 200 million euros.

No change at Autobahn GmbH

The idea of ​​loans for the federally owned motorway company is off the table. This would require the Autobahn GmbH to have its own income, which it does not currently have. It would generally be possible for the Autobahn GmbH to receive part of the income from the truck toll. There was now talk that a “deep debate” was needed for changes to the financing of the Autobahn GmbH.

Volume of the budget

According to the current draft, the traffic light coalition wants to spend more than 480 billion euros next year, almost a tenth of which is on credit. But that is still not certain. Because a federal budget is not decided by the government, but by parliament. The budget officers in the Bundestag usually make a whole series of changes before the decision is made shortly before Christmas – and sometimes even reverse cuts planned by the government.

At the same time, the traffic light coalition wants to use a package of measures to stimulate the faltering economy, maintain social benefits, relieve taxpayers and do justice to the tense international security situation.

Criticism from the Union

The Union’s chief budget officer, Christian Haase, said: “This government has once again put on an undignified performance. For months it has been dancing around the budget, only to then present something in a second attempt that is still highly questionable in constitutional terms.” The government clearly lacks the strength for a solid budget. “Germany’s condition is that of a sick patient who unfortunately lacks the right medicine.”

Criticism of the negotiators also came from within the coalition itself: Green Party deputy Andreas Audretsch told the dpa: “The back and forth between the finance minister and the chancellor was completely unnecessary. Nobody in Germany wants this bickering.”

Federal Government to reach agreement