Federal Cabinet - Household: The government is looking for another eight billion Euros
The German government will officially put its heavily contested budget for 2025 on the agenda this week, although it is still unclear how a billion-dollar hole can be plugged. If this is not achieved, negotiations may have to be held again.
First, there is a planned cabinet decision for Wednesday. After that, the budget draft goes to the Bundestag, where it can still be amended and is intended to be passed before the end of the year.
For the current year, the German government is creating some more room in the budget through a supplementary budget. Due to the slow-running economy, it is allowed to take on an additional 11.3 billion euros in debt, which will be used. With this, the credit acquisition for 2024 amounts to 50.3 billion euros, according to numbers from the Finance Ministry.
Most of this money is expected to flow into the so-called climate and transformation funds, from which, among other things, the funding for renewable energy is paid. Additionally, it will be balanced out that there is a greater need for social benefits due to the poor economic situation, and tax revenues are lower than expected. The supplementary budget is expected to be passed by the Bundestag at the beginning of November.
Budget hole in 2025
The budget for the coming year is also intended to be passed by the Bundestag ideally in November. However, the coalition still has a lot of work to do - because a billion-dollar hole still exists. While it is common for the government to plan a so-called global under-expenditure, it is betting that the ministries will not be able to actually spend all the planned money. However, the embedded hole of 17 billion euros is particularly large this time.
As for how 8 of the 17 billion euros could be raised, ideas have already been developed in the German government - but it is still not clear whether these are constitutionally and economically feasible. For example, it is being tested whether multi-billion euro subsidies for the railway and the Autobahn agency can be replaced with loans. This way, the money would not be counted against the debt brake. If the tests come out negatively, the traffic light coalition may have to discuss savings again.
The budget negotiations in this year were already exceptionally tough. In the end, Scholz, Habeck, and Lindner agreed to uphold the debt brake in the Constitution - a point win for the FDP, but the SPD in the Bundestag has not yet completely given up on the idea of an exceptional regulation due to financial burdens from the Ukraine war.
Cuts had to be made above all to the Foreign Office, the Economy Ministry, and the Development Ministry. On the other hand, there was a plus for the Defense Ministry - although not as significant as Minister Boris Pistorius had hoped. Overall, the budget draft sees a new borrowing of 43.8 billion euros, which will exhaust the scope of the debt brake.
Dismal prospects for the time after that
In the years after 2025, as stated in the Finance Ministry, budget negotiations could even cause more problems. Lindner's department 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 expenditures 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.
Package for more economic power also in the cabinet
A package is intended to make the German economy more competitive and, for example, also bring in tax revenues. Key points in this regard should also 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 employees in retirement age paying the employer contribution for unemployment insurance and partially also for the pension insurance to their employer. 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 contractually agreed full-time work, tax- and contribution-free.
Families should receive a higher child allowance and more childcare allowance. In addition, tax-free allowances and other limits for income tax and income tax should be adjusted so that taxpayers save 23 billion Euro in taxes in two years.
- The Federal Parliament will review and potentially amend the proposed 2025 budget, which the Federal government has scheduled for deliberation this week.
- Christian Lindner, leader of the FDP, has played a significant role in maintaining the debt brake in the Constitution during budget negotiations.
- Olaf Scholz and Robert Habeck, as part of the Traffic-Coalition, have faced tough negotiations to balance the budget and address financial challenges.
- In Berlin, discussions have been held regarding potential solutions to fill a billion-dollar hole in the 2025 budget, with various constitutional and economic feasibility considerations.
- The FDP has advocated for using loans instead of subsidies for projects like railway and Autobahn, reducing the burden on the debt brake.
- The SDP, despite initial reservations, agreed to maintain the debt brake in the Constitution for the 2025 budget but remains hopeful for potential exceptional regulations due to financial burdens from the Ukraine war.
- Green electricity funding and social benefit needs are among the primary reasons for the anticipated expenditure from the climate and transformation funds.
- The Federal Cabinet is expected to pass a supplementary budget to provide room in the budget for the current year and address the slow-running economy and reduced tax revenues.
- The BMF has projected that future budget negotiations, particularly after 2025, could pose additional challenges due to already committed funds and rising social expenditures.
