After weeks of debate, Germany’s coalition government leaders have agreed on the federal budget for 2025. Here’s what we know so far about how the money will be spent.

Olaf Scholz announces German budget for 2025

Alongside coalition partners Robert Habeck (Greens) and Christian Lindner (FDP), Chancellor Olaf Scholz (SPD) announced at a press conference on Friday morning that the Ampel coalition had agreed on a 2025 federal budget and “Wachstumspaket” (growth package). 

An extended period of negotiations so close to the Bundestag’s break for summer meant further tensions between the leaders, who run a coalition which took a blow at the recent European elections - where the opposing CDU picked up 30 percent of the vote - and has long been waning in popularity.

Lindner’s austerity agenda - namely cutting social security benefits - remained one of the main sticking points throughout negotiations, where the SPD and Greens are reported to have pushed back strongly. “We talk through things thoroughly and find compromises, sometimes for half the night, sometimes all night,” Scholz said in his announcement, “because the alternative is no alternative [...] running away from the responsibility”. 

Lindner is also known as a stickler for Germany’s debt brake (Schuldenbremse), a fiscal rule adopted in the Basic Law (Grundgesetz) in 2009 to limit government borrowing to no more than 0,35 percent of GDP. While the Schuldenbremse was suspended in 2020 so emergency coronavirus policies could be funded, Lindner insisted on its reapplication for the budget in 2024 and 2025.

The backdrop to the 2025 budget announcement is a German economy which has skirted a full-blown recession but remains in “troubled waters” - Habeck’s words - with economic growth of just 0,2 percent forecast for 2024.

Which budget key points are known so far?

Speaking at the press conference on July 5, Chancellor Scholz revealed the following key points about Germany’s budget plan for 2025:

53.2 billion euros per year for the German military

Scholz announced that Germany will adhere to NATO’s target of spending 2 percent of GDP on defence, committing 53,2 billion euros per year to the military. This is significantly less than initially requested by Defence Minister Boris Pistorius (SPD). More money and equipment will also be made available to the police.

More money for construction and social housing

The Chancellor said that finances in the “high billions” would be set aside for housing construction and affordable housing, with 20 billion earmarked for social housing until 2028.

A “children’s package” will be launched

The coalition announced that Kindergeld child benefits and the emergency child benefit (Kindersofortzuschlag) will be raised by five euros, increasing both benefit payments from 20 to 25 euros. These payments will then be phased out with the adoption of Kindergrundsicherung, and parents will receive 255 euros per child per month. There will also be changes to the Kinderfreibetrag amount that families receive.

Additionally, 2 billion euros will be invested between 2025 and 2026 to improve the quality of childcare facilities.

Wachstumspacket: More support for private investment

In an attempt to encourage economic growth in Germany, the government plans to adopt its “Wachstumspaket”, a series of measures including reducing importing and exporting bureaucracy, a special depreciation allowance for commercial e-cars, data protection “streamlining” for small companies and adopting the European Supply Chain Directive into national legislation.

Billions in tax relief are planned for businesses and research allowances will be extended.

Tax exemption for overtime hours

In a series of fiscal changes which will impact employees, a tax exemption on overtime hours worked will be introduced, but further details are yet to be clarified. 

“Start-up financing” will be introduced as part of the Bürgergeld citizens’ allowance scheme. Former Bürgergeld recipients will take home more of their wages after tax in their first year of being back in work, without earnings being deducted from their housing benefit.

When will we know more details about the budget?

The budget plan will now be approved by ministers on July 17, once further details have been finalised in the coming days.

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