Germany’s Cabinet on Wednesday finalized the 2025 budget after weeks of wrangling, sending the €480.6 billion ($526 billion) package to parliament for approval.
The budget has been the subject of weeks of tense negotiations within Chancellor Olaf Scholz’s fractious – and unpopular – three-party coalition.
The €480.6 billion total is about €8 billion less than this year.
The budget now must be passed by lawmakers, likely in a vote to be held in November.
The initial framework proposal, which was agreed by the coalition leaders earlier this month, came under fire by critics who said it did not do enough to bolster the military and spur growth.
But Finance Minister Christian Lindner on Wednesday hailed the agreement as the “start of the economic turnaround” for Germany, as the Cabinet also decided on several economic policy stimuli to boost recent weak growth.
“With our growth initiative, we are providing important economic policy impetus to make Germany more attractive as a business location,” Lindner said.
“New room for manoeuvre in the budget can only be created through more economic growth. To achieve this, we must increase our competitiveness and strengthen our innovative power,” he said.
Measures include improvements to depreciation on investments, efforts to reduce bureaucracy and relief on electricity prices for energy-intensive companies.
There are also plans for tax incentives for foreign skilled workers and tougher measures for citizens receiving unemployment benefits.
The budget contains a €17 billion budget gap. The German government is betting that the ministries will not spend all the money they have been allocated. This approach is quite common, but the sum is very high.
The €17 billion gap also includes €8 billion that the federal government already has an idea for financing, but which may be constitutionally untenable.
Germany has strict rules against budget deficits, known as the debt brake, which is enshrined in the country’s constitution.
The opposition centre-right party Christian Democratic Union (CDU) considers this aspect of the budget to be deeply dubious.
“The government is trying to feign the ability to act with bogus solutions,” the conservative group’s budget officer Christian Haase said.
He said the draft budget serves solely to maintain the coalition in power and is “a nasty mixture of creative accounting, tricks and questionable budgetary practices.”
The finance minister is also planning to take on new loans totalling €43.8 billion, the maximum allowed by the debt brake.
The 2025 budget aims to revive the economy, maintain social benefits, and respond to international security concerns.
Germany’s Defence Minister Boris Pistorius will receive additional funds, enabling Germany to exceed NATO’s 2% GDP target for defence spending. Security agencies will be strengthened with around €1 billion.
Lindner advocates for a balanced budget by curbing government spending. Despite this, most ministries are set to receive more money than promised last year.
To balance the budget, Lindner plans to account for interest expenses differently and hopes a package to stimulate economic growth will bring in around €6 billion more in tax revenues.
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