2024-08-25 16:46:33
Further billion-dollar gap
New budget compromise – but target missed
Updated on 16.08.2024Reading time: 5 min.
The new agreement of the traffic light coalition on the 2025 budget is likely to keep the Bundestag very busy. There are still billions of holes.
The federal government has had a really hard time with this draft budget: countless hours of negotiations involving the Federal Chancellor, annoyed coalition partners and a package that was reopened because of the threat of a breach of the constitution. Now there is a compromise, but there are still billions of euros in the budget for next year. In the end, Chancellor Olaf Scholz (SPD), Vice Chancellor Robert Habeck (Greens) and Finance Minister Christian Lindner (FDP) failed to achieve their goal of shrinking the hole to an acceptable – and usual – nine billion.
In the afternoon, government spokesman Steffen Hebestreit announced an “agreement on the 2025 budget”. The requirements of the debt brake in the Basic Law would continue to be complied with. This is a major concern for Lindner. The new compromise essentially provides for the reallocation of funds for the federally owned Deutsche Bahn.
Chancellor Olaf Scholz (SPD) told the German Press Agency that the federal government would today officially submit the government draft of the 2025 federal budget to the Bundestag and the Bundesrat, as agreed in July. “In doing so, we have decided to invest in transport infrastructure with additional capital and loans for Deutsche Bahn, and have made further general savings compared to the July decision.” The budget legislator can now begin deliberations on next year’s budget on time after the parliamentary summer recess.
Vice Chancellor Habeck said: “It is good that an agreement has finally been reached.” Everything else will be clarified in the next few weeks. “For me, it is crucial that we now move forward quickly with the growth initiative alongside the budget, because our economy needs impetus quickly.”
Lindner emphasized that the draft budget was constitutionally “unassailable,” viable, and focused on education, innovation, investments in roads, rail, digital networks, security authorities, and the armed forces. He also pointed to planned tax relief for citizens and companies worth billions. Lindner described the negotiations within the government in Düsseldorf as “extraordinarily difficult.” He called the remaining gap of twelve billion euros a disappointment. The gap is somewhat larger than he would have liked as finance minister. “It would be better if it were in single figures.”
According to the German government, the compromise will reduce the so-called global spending cuts by around five billion euros to around 12 billion euros. The draft budget adopted in July still spoke of a spending cut of around 17 billion euros.
A global reduction in spending is in fact a blanket savings target in the budget. The federal government assumes that the ministries will not spend all the money in the year anyway – for example because projects are delayed. This approach is quite common, but planning a double-digit billion amount as a gap is considered risky. The government assumes that this gap will be reduced, among other things, by economic development, as it announced. However, parliament now faces a relatively large task in the budget deliberations because the reduction in spending is significantly greater than usual. The budget is to be approved by the Bundestag in late autumn, with the first parliamentary deliberations planned for September.
At the beginning of July, Chancellor Scholz, Vice Chancellor Habeck and Finance Minister Lindner had already announced an agreement on the budget for 2025. They had previously struggled for weeks to close a gap of at least 30 billion euros. This should then have been achieved without overly harsh austerity measures.
The shortfall of 17 billion euros was actually supposed to be covered by around eight billion euros. In addition, there were orders to examine whether the railway and the motorway company should receive credit-financed loans instead of direct subsidies from the budget. Another issue was money from the state development bank KfW.
Lindner had already made it clear after the first agreement that there were legal and economic concerns as to whether all the projects envisaged for a solution could be implemented
After two reports had partially confirmed the doubts, the coalition partners rejected the idea of using 4.9 billion euros from the KfW for other purposes in the budget instead of for the gas price cap.
There was also controversy over whether the railway and motorway companies could be supported without this having to be counted towards the debt brake. Lindner and Scholz had different opinions on this, which is why renegotiations have now taken place.