The lighthouse contributes to financial savings, yet unwittingly digs a billion-dollar deficit.
At least: a deal. Following several tense discussions over the 2025 federal budget, this qualifies as a victory. However, the coalition government is displaying more generosity than typical. Finance Minister Lindner openly admits: the government has reached its limit - "in all aspects".
The federal government has encountered numerous hurdles while drafting this budget: endless rounds of negotiations involving the federal chancellor, exasperated coalition partners, and a budget needing constant revisions due to potential constitutional breaches. Now, there's a compromise, but it leaves a considerable financial void in the budget for the coming year. Chancellor Olaf Scholz, Vice-Chancellor Robert Habeck, and Finance Minister Christian Lindner were unable to shrink this deficit to the usual nine billion as initially planned.
Later in the day, government spokesperson Steffen Hebestreit announced a "deal on the 2025 budget". The principles of the debt cap stated in the Basic Law will still be upheld, a significant concern for FDP member Lindner. The revised agreement primarily involves reallocating funds for German Railways. Chancellor Olaf Scholz confirmed their intention to submit the government draft of the 2025 federal budget to the Bundestag and Bundesrat as per the July agreement. "In accordance with our July agreement, we will submit the government draft of the 2025 federal budget to the Bundestag and Bundesrat today. We have agreed on additional capital and loans for German Railways and further general savings." Parliament can now dive into discussions regarding the upcoming budget right after the summer break.
Vice-Chancellor Habeck stated, "It's good there's finally a deal." Additional details will be ironed out soon. "What's important at this juncture is to expedite our growth initiative alongside the budget as our economy calls for swift stimuli."
The turning point: fiscal savings
Lindner highlighted that the revised budget proposal is constitutional, sustainable, and assigns priority to education, innovation, road investments, railway developments, digital networks, security agencies, and the Bundeswehr. He also mentioned projected multi-billion-euro tax breaks for citizens and businesses. Lindner described the internal discussions as "extremely challenging". "We have reached our limits in every way, and political differences are apparent." He classified the remaining twelve billion-euro deficit as an "unwelcome surprise". A smaller gap would have been preferable for him as finance minister.
In accordance with the federal government, the so-called global financial savings will be reduced by approximately five billion euros to around twelve billion euros through the revised agreement. The proposed savings target in the July agreement was around seventeen billion euros. Global financial savings represent a blanket savings threshold in the budget. The federal government anticipates that this savings gap will decrease, among other factors, due to economic development.
This process is routine, but planning a double-digit billion-euro gap is risky. The government anticipates that this gap will be reduced, amongst other ways, through economic growth, as it has announced. However, the parliament faces an arduous task in budget negotiations, as the savings gap is significantly larger than usual. The budget is set to be approved by the Bundestag in late autumn, with the first debate scheduled for September.
Funding for railways and road development circumventing the debt cap.
In early July, Federal Chancellor Scholz, Vice-Chancellor Habeck, and Finance Minister Lindner had already reached an agreement on the 2025 budget. They had spent weeks negotiating to fill a minimum 30 billion euro gap without resorting to severe austerity measures. The savings of 17 billion euros were intended to be closed with approximately 8 billion euros in funds. There were debates regarding whether the rail and motorway companies should receive credit-financed loans instead of direct budget subsidies, and the allocation of funds from the state-owned development bank KfW.
Lindner had previously expressed legal and economic concerns following the initial agreement, raising questions about the feasibility of all proposed solutions. Two external opinions partially supported these concerns, leading the coalition partners to abandon the idea of utilizing 4.9 billion euros from KfW funds for purposes other than the gas price cap.
Disputes also arose regarding whether the rail and motorway companies could be supported without this affecting the debt cap. Lindner and Scholz held differing opinions, resulting in further negotiations.
Uniper to offer more financial support to the federal government
The government now plans to allocate additional equity of four and a half billion euros to DB AG's infrastructure division to replace the budgetary subsidies initially planned for the 2025 federal budget draft. The railway company is also set to receive a three-billion-euro loan from the federal government. This will replace high-yield bonds with cheaper federal budget loans, benefiting both the rail company and the federal government. Originally, an increase in equity of around five and a half billion euros had been earmarked to fund infrastructure investments in the renovation of the deteriorating railway network. In total, 15.1 billion euros are now intended for rail infrastructure in the 2025 budget.
Increasing the rail company's equity for financing purposes will result in higher track fees, which are charges levied for rail network usage, similar to a toll. Rail associations fear that these higher costs may hinder the transition of freight traffic to rail.
Two additional strategies are being considered to combat overspending, totalling approximately 500 million euros. Firstly, an extra 300 million euros will be collected from Uniper, the nationalized energy provider, due to a higher payment towards the federal budget, following the 2022 energy crisis which required the company's takeover to ensure a steady supply of energy for households and the economy. Secondly, the reserve for potential tax revenue losses resulting from the EU energy crisis contribution will be lowered by 200 million euros.
The notion of providing loans to the government-owned highway company has been disregarded. The reason being, the company needs to generate its own income, which it currently lacks. There are suspicions that the highway company might receive a portion of the toll revenues from trucks. There's a desire for a more in-depth discussion regarding alterations in the highway company's financing.
Union: "Unseemly show"
As per the current proposal, the traffic light coalition plans to allocate over 480 billion euros next year, around 10% of which would be on credit. However, this isn't set in stone. A federal budget isn't determined by the government but by parliament. The budget committee in the Bundestag typically makes multiple adjustments to the plan before it's approved just before Christmas - sometimes even overturning proposed government cuts. The traffic light coalition aims to stimulate the struggling economy, preserve social benefits, lighten taxpayers' burden, and address the geopolitical tension with a set of measures.
The Union's chief budgetary officer, Christian Haase, commented: "This government has rehearsed an unseemly show again. For months, it's been dancing around the budget, only to present something in a second attempt that raises questions under constitutional law." The government lacks the means to produce a reliable budget. "Germany is like a sick patient who unfortunately doesn't have the correct medication."
Criticism also surfaced within the coalition: The Green faction's deputy leader, Andreas Audretsch, said: "The back-and-forth between the finance minister and the chancellor was completely unnecessary. No one in Germany wants this back-and-forth."
The coalition government's decision to allocate funds for German Railways has sparked concerns about the debt cap, particularly from Finance Minister Lindner. He emphasized the need to cut global financial savings by approximately five billion euros to address this issue.
During the negotiations for the 2025 federal budget, budgetary policy played a crucial role. The government initially aimed to close a savings gap of seventeen billion euros, but due to various factors, this target had to be revised.
