Essential Insights into the Federal Budget 2025
The German Bundestag is set to vote on the federal government's budget for the current year this week, with two-thirds of the year already passed. This budget, under Chancellor Friedrich Merz (CDU), marks the first for the black-red federal government.
The budget, if passed, will only be valid for three months. However, it outlines significant investments in various sectors, including defense, infrastructure, transportation, energy, hospitals, research institutions, and sports facilities. A total of 75 billion euros from the core budget will flow into these areas, with over 30 billion debt-financed.
A multi-year special fund of 500 billion euros, entirely debt-financed, is being created for these investments. The federal government is also allowed to spend 502.55 billion euros this year, with 62.7 billion euros earmarked for investments.
More than a third of the total budget is planned for work and social affairs, with a significant contribution to the pension insurance. Over 37 billion euros from the fund will be used this year, with 11.7 billion for transportation, 1.5 billion for hospitals, and almost 3 billion for broadband expansion.
However, the budget has not been without controversy. The opposition criticizes the budget for having little for citizens despite massive debts. The Greens and Left Party accuse the federal government of manipulating the budget instead of investing, while the AfD advocates for adhering to the debt brake and suggests cuts to climate projects, EU contributions, and weapons deliveries to Ukraine.
Finance Minister Lars Klingbeil has called on all ministries to cut back and may reduce or eliminate funding programs, subsidies, or other claims to balance the budget. The Union and SPD are negotiating whether wealth should be taxed more heavily, for example, through inheritance tax.
The budget for 2025 was a point of contention because of a three-billion-euro gap that then-Chancellor Olaf Scholz wanted to close with loans, which was rejected by then-Finance Minister and FDP leader Christian Lindner. After the early Bundestag election, Union and SPD removed this potential point of contention by creating credit room for defense and infrastructure spending through exceptions to the debt brake.
Looking ahead, the 2026 budget is expected to be decided before the end of the year, but the Union and SPD are already concerned about the 2027 budget, which has a gap of around 34 billion euros. The federal government is yet to reveal its strategies for sustainably funding increased investments in defense and infrastructure in the coming years.
The budget for 2023 sets a precedent for the black-red federal government's approach to financial management. As the vote approaches, the focus remains on striking a balance between investment and fiscal responsibility.
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