The German government has agreed on a compromise to address the massive budget shortfall for 2025. Proposed cuts across various sectors, including pensions and public transport, have sparked significant debate.
Germany reaches budget compromise to tackle billion-euro gap
After prolonged negotiations, the leaders of Germany’s ruling coalition, known as the “Ampel” coalition, reached a new agreement on Friday, August 16, to address the substantial budget shortfall for 2025. The compromise aims to reduce the budget gap by billions, though it remains uncertain whether the measures will be sufficient. Over recent months, there have been repeated calls for savings and cuts, particularly affecting social welfare programs.
According to the German government, the compromise reduces the planned global expenditure cut in the 2025 budget by €4.5 billion, bringing it down to €12 billion. This reduction, essentially a gap in the budget, is expected to shrink further due to economic developments. However, the Parliament now faces a significant challenge in the budget discussions, as the shortfall remains larger than usual.
Chancellor Olaf Scholz (SPD) stated to the German Press Agency that, compared to the July resolution, additional investments in transportation infrastructure, particularly for Deutsche Bahn, have been approved, along with general savings across various sectors.
Proposed cuts spark debate: Transport ticket, pensions, and social welfare at risk
The exact nature of the impending cuts remains to be seen. Over recent months, the billion-euro budget gap has been a major point of contention, with various reduction proposals being considered. The Free Democratic Party (FDP) recently suggested across-the-board cuts in all government departments. “A blanket 1.5% cut across all departments is a possible solution that can be discussed,” FDP deputy leader Christoph Meyer told Bild.
If the departmental budgets are reduced as the FDP suggests, the government will need to find savings elsewhere. Focus Online speculates that the popular Germany-wide transport ticket, the Deutschlandticket, could be the most vulnerable to these cuts. The ticket’s funding has repeatedly been in jeopardy, and while its cancellation seems unlikely, an increase in its price could be on the horizon, potentially as soon as 2024.
A price increase for the Deutschlandticket in 2025 has already been discussed. During a special session of the transport ministers in Düsseldorf in July, North Rhine-Westphalia’s Transport Minister Oliver Krischer stated, “The transport ministers of the federal states agree that there will be a price increase for the ticket in 2025.” However, the exact amount of the increase remains unknown at this time.
Pension reforms and social welfare cuts: Controversies and concerns
Pension cuts were also a focal point in the discussions. The government had already set a course for budget cuts in 2025, which included reducing the federal subsidy to the pension fund. Critics argue that this would deplete the pension fund’s reserves, with some accusing the government of shirking its financial responsibilities. “Rather, it is dipping into the pension insurance funds,” said Gundula Roßbach, President of the German Pension Insurance Federation.
There have also been longstanding calls to address the pension gap related to early retirement at 63 and the so-called “mothers’ pension.” “Adjustments could be made to the eligibility for early retirement at 63 and for widows’ pensions,” economist Veronika Grimm suggested in an interview with the Funke Mediengruppe. It is worth noting that the “pension at 63” is a colloquial term referring to a pension for those with especially long insurance periods. However, the potential abolition of the mothers’ pension has faced strong opposition. A study by the German Institute for Economic Research (DIW) indicated that eliminating this benefit would increase the poverty risk for many women and significantly widen the pension gap between men and women.
The fate of social welfare: Will the basic income be reduced?
Proposed cuts to Germany’s basic income, known as Bürgergeld, have also sparked debate. FDP parliamentary leader Christian Dürr suggested reducing the Bürgergeld by €14 to €20. If the FDP’s proposal is implemented, standard rates could decrease by 2.5% to 3.5%. Dürr urged swift action on the proposed cuts, telling Bild that the plans should be “put into action as soon as possible.”
An overview of how much less the citizen’s allowance recipients could receive:
| Recipient | Current rule set | Standard rate according to FDP demand (2.5-3.5% less) |
|---|---|---|
| Single people | 563 euros | 543.30 to 548.92 euros |
| Pair per partner | 506 euros | 488.29 to 493.35 euros |
| Adults in institutions | 451 euros | 435.21 to 439.73 euros |
| Young people aged 14-17 | 471 euros | 454.51 to 459.22 euros |
| Child from 6 to 13 years | 390 euros | 376.35 to 380.25 euros |
| Child from 0 to 5 years | 357 euros | 344.50 to 348.07 euros |
Despite these calls, the Social Democratic Party (SPD) and the Green Party rejected the FDP’s proposal to reduce Bürgergeld on Monday, August 12. The SPD-led Federal Ministry of Social Affairs clarified that, under current law, any reduction in social benefits is not feasible. “I see absolutely no point in constantly causing uncertainty with half-baked ideas that are completely detached from reality,” said Martin Rosemann, SPD’s spokesperson for labor and social affairs.
Germany’s federal budget is primarily funded through tax revenues, including income tax, corporate tax, and value-added tax (VAT), along with other sources such as customs duties and federal borrowing. The budget is determined and proposed by the Federal Ministry of Finance, which drafts the budget plan based on economic forecasts and policy priorities. This draft is then reviewed and approved by the Federal Cabinet before being submitted to the Bundestag (German federal parliament) for debate and final approval. The Bundestag has the authority to make amendments and must pass the budget through a majority vote. Once approved, the budget is allocated across various sectors, including social security, defense, education, and infrastructure, with specific allocations determined by the priorities set forth in the budget plan. The 2024 federal budget, for instance, was adopted by the Bundestag and includes significant investments while adhering to debt limits.
