German Cabinet approves budget for 2025, welcoming “economic turnaround”

Germany’s Cabinet finalized the 2025 budget on Wednesday after weeks of wrangling, sending the 480.6 billion euro ($526 billion) package to parliament for approval.

The budget has been the subject of weeks of tense negotiations within Chancellor Olaf Scholz’s turbulent – and unpopular – three-party coalition.

The total of 480.6 billion euros is around 8 billion euros less than this year.

The budget must now be approved by lawmakers, probably in a vote that will take place in November.

The initial framework proposal, which was agreed by coalition leaders earlier this month, was criticized by critics who said it did not do enough to bolster the military and stimulate growth.

But Finance Minister Christian Lindner on Wednesday hailed the deal as the “start of economic recovery” for Germany, as the Cabinet also decided on several economic policy stimulus to boost recent weak growth.

“With our growth initiative, we are providing an important economic policy boost 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 said.

Measures include improvements in investment depreciation, efforts to reduce bureaucracy and relief on electricity prices for energy-intensive businesses.

There are also plans for tax incentives for foreign skilled workers and tougher measures for citizens receiving unemployment benefits.

The budget contains a budget deficit of 17 billion euros. The German government is betting that ministries will not spend all the money allocated to them. 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 to finance, but which may be constitutionally unsustainable.

Germany has strict rules against budget deficits, known as the debt brake, which are enshrined in the country’s constitution.

The center-right opposition Christian Democratic Union (CDU) considers this aspect of the budget deeply dubious.

“The government is trying to pretend to be able to act with false solutions,” said the conservative group’s budget manager, Christian Haase.

He said the draft budget only serves to keep the coalition in power and is “a nasty mix of creative accounting, gimmicks and questionable budgetary practices.”

The Finance Minister also plans to take out new loans totaling 43.8 billion euros, the maximum allowed by the debt brake.

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The 2025 budget aims to revive the economy, maintain social benefits and respond to international security concerns.

German Defense Minister Boris Pistorius will receive additional funds, allowing Germany to surpass NATO’s 2% of GDP target for defense spending. Security agencies will be reinforced with around one billion euros.

Lindner advocates a balanced budget, reducing government spending. Despite this, most ministries are expected to receive more money than promised last year.

To balance the budget, Lindner plans to account for interest expenses differently and expects a package to stimulate economic growth to bring in around €6 billion more in tax revenue.