After long negotiations - What the agreement on the budget and growth package means
Once again, there was a marathon negotiation. Early in the morning, however, German Chancellor Olaf Scholz (SPD), Finance Minister Christian Lindner (FDP), and Economics Minister Robert Habeck (Greens) achieved a breakthrough. Now, a basic agreement on the 2025 federal budget is in place. The German government also plans a growth package.
Budget rules to be upheld
The constitutional debt brake should be adhered to, according to information from government and coalition circles obtained by the German Press Agency. It allows for new debt within a limited scope. This is a significant win for the FDP, which has rejected all major demands from the SPD to suspend the debt brake's exceptions due to financial burdens from the Ukraine war.
Supplementary budget planned
For this year, a supplementary budget of around 11 billion euros is planned. In government circles, references were made to lower tax revenues and higher spending on citizens' aid. Additionally, there are billions in additional costs for state support for renewable energy.
In the 2025 federal budget, according to Handelsblatt, total expenditures are expected to amount to 470 billion euros. This would represent savings compared to the current year. This year, expenditures are planned at 476.8 billion euros.
Ampel finds room for maneuver
To reduce pressure on budgets, the traffic light coalition found ways to create additional leeway. In government circles, this was referred to as a "more realistic EU contribution estimate." Additionally, lower interest payments and the possibility of shifting bookings for individual budget lines were mentioned.
Within the coalition, there is also talk of a so-called global minimum expenditure. These are not precisely quantified savings targets. The coalition is counting on the fact that ministries will require less money.
Less money for the Bundeswehr than requested
For the Bundeswehr, significantly less additional funding will be provided in the budget for the coming year than Defense Minister Boris Pistorius (SPD) had demanded. Following the agreement of the traffic light coalition leaders, the defense budget is expected to increase from its current level of around 52 billion euros by approximately 1.2 billion euros. Pistorius had demanded significantly more money.
Green co-faction leader Katharina Dröge criticized that, especially in the areas of domestic and foreign security and humanitarian aid, the budget does not meet the needs of the country.
Budget not yet under roof and glass
The cabinet is expected to adopt the budget draft in mid-July. Only then will the many details for the individual ministries be available. A first debate in the Bundestag is planned for mid-September, and the budget is to be adopted in November or December. It is likely that there will still be difficult negotiations.
Growth package to boost growth
In Germany, only minimal growth is expected this year. Companies are holding back on investments, and private consumption is not picking up. The government now intends to counteract and plans comprehensive relief measures to stimulate the economy. The growth package could lead to an additional growth of more than half a percent in the next year, representing 26 billion euros in additional economic output.
This is planned for businesses.
It is planned to give accelerated tax deductions for investments and improve research grants. In addition, the traffic light coalition aims to reduce bureaucracy in all ministries. Binding practice checks should be introduced in all ministries. For commercially used e-cars, there are planned special tax deductions. Data protection should be "streamlined" to mainly relieve small businesses. The European supply chain regulation should be quickly implemented into national law. This is mainly about reducing reporting obligations, as there is already a German law.
This is for employees
Incentives for more employment - this is the goal of the traffic light coalition. More employment means that the social security funds will be relieved.
Interestingly, a tax exemption for overtime work is planned to be introduced. Exactly what is planned is still open.
In addition, employers' contributions to pension and unemployment insurance are planned to be paid directly as wages to employees who already receive a pension in the future. This should give an incentive for pensioners to work longer voluntarily.
In citizens' income, a "start-up financing" is planned to be introduced, as stated in a paper. When long-term unemployed people come out of the citizens' income benefit, they should keep significantly more of their earnings in the first year, without this affecting housing benefit, for example.
This is for families
The child supplement for needy families in citizens' income is planned to be increased by five euros next year. This amount is to rise from the current 20 euros to 25 euros and will expire with the introduction of the child minimum income, as stated in a paper obtained by the dpa. The child benefit, which all parents in Germany receive per child, is to increase to 255 euros monthly according to the agreement.
Changes are also planned for the child tax allowance. It is to be raised, as the paper reveals, to 9,540 euros this year and to 9,600 euros next year. The allowance is deducted from taxable income and therefore has a tax-reducing effect for families.
- The European Union (EU) has been closely following the negotiation process between the Federal Government and its coalition partners.
- Christian Lindner, the leader of the FDP, has emphasized the importance of maintaining the debt brake in the negotiations with the SPD and the Greens.
- According to reports from the German Press Agency, the coalition is considering reducing its budget contributions to the EU as a way to save money.
- The economic situation in Germany is a major concern for the Federal Government, particularly in regard to the impact of the Ukraine war on the country's finances.
- The impact of the Ukraine war on Germany's household budgets has also been a topic of discussion during negotiations for the 2025 federal budget.
- The Bundestag is expected to debate the draft budget in mid-September, and a final vote is planned for November or December.
- The growth package being planned by the Federal Government is expected to include incentives for businesses to invest and reduce bureaucracy, as well as tax breaks for electric cars.
- The FDP has pushed for less funding for the German Armed Forces in the upcoming budget, which has been a point of contention within the coalition.
- Boris Pistorius, the defense minister, had requested significant additional funding for the Bundeswehr, but that request was not fully met in the agreement reached by the coalition leaders.
- The trafficking light coalition is also planning changes to the citizens' income and child allowance programs to provide more support to families and encourage employment.
