The coalition partners in the government – made up of the Social Democrats (SPD), Greens and Free Democrats (FDP) – finally agreed the budget for 2025 in July after a long struggle.
But there are already major doubts about its feasibility concerning the financing of the plans.
Germany’s total budget volume is around €481 billion. Among the key points are greater security, societal cohesion, tax relief for residents and businesses, family support, ambitious climate action and greater economic growth.
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But the Finance Ministry has thrown a spanner in the works. According to the ministry, headed up by the FDP’s Christian Lindner, proposals to halve the funding shortfall of €17 billion cannot be implemented in full.
Lindner had the financing options analysed legally and economically by a team of experts – and his ministry said this revealed big concerns.
In order to further reduce the deficit, “further discussions within the federal government and as part of parliamentary deliberations” are necessary, the Finance Ministry said on Thursday, according to Der Spiegel.
The ministry was keen to stress, however, that the option of suspending the debt brake “does not exist constitutionally or economically”.
One of the most controversial and hotly-debated parts of next year’s spending plans centred on whether it was possible to soften Germany’s infamous debt-brake (Schuldenbremse) – a self-imposed cap on annual borrowing. In the end Finance Minister Lindner got his way with Germany maintaining the debt brake.
Is it back to there drawing board?
Since taking on further debt is currently out of the question, the coalition is likely to face more tricky discussions on where to make cuts if the expert advice is followed.
The Finance Ministry has once again brought lower social welfare spending into play – something Lindner has been pushing for, but the Social Democrats and Greens have put their foot down on.
From the Finance Ministry’s point of view, “further consolidation measures must be developed in the area of consumption”.
The ministry added: “Measures to strengthen the accuracy of social spending, on which no political agreement has yet been reached, could also reduce the need for action.”
How was the funding gap originally set to be tackled?
The current plans to reduce the funding hole in the budget involve converting grants to infrastructure companies like Deutsche Bahn into loans. In addition, residual billions from the federal development bank KfW from the settlement of the gas price brake were to boost spending plans. This was set to reduce the financial gap to around €9 billion.
Chancellor Olaf Scholz (SPD), Vice-Chancellor Robert Habeck (Greens) and Lindner had only reached an agreement on the draft federal budget for 2025 using these options. Lindner, however, had made his scepticism clear from the outset and assigned the management of these considerations to the Chancellery.
According to the Finance Ministry, there are legal questions surrounding these ways of closing the funding gap.
After last year’s catastrophic constitutional court ruling that threw Germany’s spending plans into disarray resulting in a €60 billion shortfall, the government will be keen to avoid any other potential budget disasters.
What happens next?
The Finance Ministry is due to submit the draft budget for 2025 to the Bundestag by August 16th where it will be reviewed and voted on. This is still set to happen.
But the coalition partners may have to take some time out from their vacation to think about whether they are on the right track to plugging the €17 billion funding hole.
“If the three gentlemen need to talk to each other, they can do so at any time, and of course they are in constant dialogue,” government spokesman Wolfgang Büchner said when asked by broadcaster Tagesschau on whether debates are expected during the summer break.
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