Billion-hole in the budget not yet plugged
The traffic light government will bring their contested budget for 2025 on the way this week. However, it is still unclear how the billions hole can be plugged. The government does have ideas - but it's uncertain if these are constitutionally and economically feasible.
The Federal government will officially bring their fiercely contested budget for 2025 on the way this week, although it's still not entirely clear how a billions hole can be plugged. If this isn't achieved, negotiations may have to start anew. First, however, a cabinet decision is planned for Wednesday. After that, the budget draft goes to the Bundestag, where it can still be amended and is expected to be passed by the end of the year.
For the current year, the Federal government is securing some extra room for maneuver with a supplementary budget. Due to the sluggish economy, it can borrow an additional 11.3 billion Euros, according to numbers from the Finance Ministry. This will be used. As a result, the credit acquisition for 2024 will amount to 50.3 billion Euros.
Embedded hole particularly large
Most of this money will flow into the so-called Climate and Transformation Fund, from which, among other things, the funding for renewable energy is paid. In addition, the deficit will be balanced out because there is a greater need for citizens' income and tax revenues are lower than expected. The supplementary budget is expected to be passed by the Bundestag at the beginning of November.
The budget for the coming year is also supposed to be passed ideally in November by the Bundestag. However, the coalition still has a lot of work to do - because a billions hole still exists. It's common practice for the government to plan a so-called global under-expenditure. They bet that the ministries won't be able to spend all the planned money in reality. However, this time, the embedded hole is particularly large at 17 billion Euros.
As for how 8 of the 17 billion Euros could be raised, ideas have already been developed in the Federal government - but it's still unclear if these are constitutionally and economically feasible. For example, it's being tested whether billion-euro subsidies for the railway and the Autobahn agency can be replaced with loans. This way, the money wouldn't be counted towards the debt brake. If the tests come back negative, the traffic light coalition may have to discuss savings measures again.
New borrowing of 43.8 billion Euros
The budget negotiations this year were particularly tough. In the end, Scholz, Habeck, and Lindner agreed to uphold the debt brake in the Basic Law - a point for the FDP, but the SPD in the Bundestag has not yet given up the idea of an exception due to financial burdens from the Ukraine war. Cuts had to be made mainly to the Foreign Office, the Economy Ministry, and the Development Ministry.
Against this, there was an additional plus for the Defense Ministry - however, not as clearly as Minister Boris Pistorius had hoped for, with a total budget proposal of 43.8 billion Euro in new debt. The budget plan warns that budget negotiations in the years after 2025 could cause even more problems. Lindner's ministry warns of a "relatively high rigidity of the budget." A lot of money is already tied up - through statutory claims of the population, rising social expenses for an aging society, and maintained quotas such as defense spending. Social expenses, 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 of a total of 65 billion Euro.
Packages to make the German economy more competitive
A package is intended to make the German economy more competitive and, for example, also bring in tax revenues. Key points in this regard are also expected to be decided on Wednesday. It's not just about accelerated depreciation of investments for companies and the reduction of bureaucracy. Employees should receive incentives to work more and longer - for example, by allowing employees in retirement age to pay employer contributions for unemployment insurance and partially also for pension insurance to their employers.
For foreign skilled workers, a tax deduction is planned for the first three years of their employment in Germany. In addition, the government intends to make overtime, which goes beyond the tariff-agreed full-time work, tax- and contribution-free. Families should receive a higher childcare allowance and more child benefit. In addition, tax deductions and other limits for income and payroll taxes should be adjusted so that women and men can save 23 billion Euro in taxes in two years.
Despite the ongoing budget negotiations, the Federal government, led by the Ampel Coalition, remains committed to passing their contested budget for 2025 by the end of the year. However, plugging a significant billions hole remains a challenge. Christian Lindner, the Finance Minister, has proposed potential solutions, such as replacing billion-euro subsidies with loans, but the constitutional and economic feasibility of these ideas is yet to be determined.
