Germany's coalition agrees on a budget for 2025

German ministers on Wednesday finished the draft of the Cabinet's 2025 budget, with a package intended to boost growth and put the brakes on spending.

The budget has been the subject of weeks of wrangling about borrowing and ministry funding within Chancellor Olaf Scholz's three-party coalition.

What the numbers look like

The total budget for 2025 is €480.6 billion ($526 billion), about €8 billion less than this year. Despite this, Germany's finance ministry has allocated €78 billion as investments — a record level.

Finance Minister Christian Lindner is planning new loans of €43.8 billion, slightly less than this year. 

Chancellor Olaf Scholz's center-left Social Democrats and the Greens were said to have floated the idea of higher loans, but Lindner's business-focused Free Democrats resisted and prevailed.

Scholz, the Green Party's Vice Chancellor Robert Habeck, and Lindner had been trying to close a financing gap of around €30 billion for weeks.

Spending and borrowing has been a major point of friction in the country's three-party coalition government for months now, if not longer.

In a video published by his ministry, Lindner said a balanced budget was only possible "by curbing the politicians' appetite for ever higher government spending."

However, the budget is not as thrifty as some had expected, with most parts of government receiving more money than last year, including the transport, interior, family, defense, foreign and education ministries.

There will also be increased payments to families, more investment in kindergartens, and more money for climate protection.

Germany draft budget "a compromise in which all parties have to find their way," Green Party's lawmaker tells DW

Ottmar von Holtz, a member of the Bundestag for the Green Party, told DW that it was "a compromise in which all parties have to find their way."

"It is the Bundestag that's doing the legislation on the budget. The government has only proposed a draft. So we are at the beginning of a process, not the end," he said.

As a member of the Committee on Economic Cooperation and Development, von Holtz believes that spending on development and humanitarian aid pays "into global security situation, which is also of course security situation for Germany then."

How does Germany plan to boost growth?

Lindner hailed the agreement as the "start of the economic turnaround" for Germany, with decisions on several economic policy stimuli to boost the sluggish growth of recent years.

"With our growth initiative, we are providing important economic policy impetus to make Germany more attractive as a business location," said Lindner.

"New room for maneuver 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 added.

The coalition wants to reduce bureaucracy and ease the burden of high electricity prices on energy-intensive companies.

Employees are to be given more incentives to work more and longer, with overtime to be made exempt from tax and social contributions.

Tax advantages are planned, among other things, to attract foreign skilled workers to Germany and to make spending on research and development. There would also be tweaks to make investment more attractive.

A total of 49 measures are planned and various amendments to the law are to be made by the end of the year.

Lindner said he hoped the measures would bring in an extra €6 million in revenue next year. However, the Finance Ministry has already said it expects €21.9 billion less than it had predicted in tax revenue next year compared with a forecast toward the end of 2023.

The German government's 2024 budget was also a challenge for Germany's governing coalition.

A judgment by the country's Constitutional Court last November forbade repurposing emergency funds originally earmarked for softening the impact of the COVID-19 pandemic.

That left ministers looking to fill a gap in government finances of €60 billion ($65 billion) over several years.

rc/rm (AFP, Reuters, dpa)