After a decade marked by escalating expenditures, the German government has recently unveiled a budgetary plan for the upcoming year that involves a significant reduction of €30.6 billion. This decision has far-reaching implications for various sectors, including healthcare, childcare, and public transportation, setting off intense political confrontations both within the ruling coalition and across party lines.
Finance Minister Christian Lindner justified these stringent measures by pointing to the ballooning public debt resulting from the ongoing coronavirus pandemic and the energy crisis stemming from Russia’s involvement in the conflict in Ukraine. According to Lindner, such circumstances have left no choice but to pursue unavoidable austerity measures. He emphasized the urgent need to reestablish stricter fiscal policies that abide by the constitutional debt brake, a provision that imposes limits on government spending.
Lindner stated, “We are merely at the inception of a fiscal transformation, endeavoring to alleviate the burden of debt on the state while refraining from imposing additional taxes on individuals and businesses.”
The dwindling tax revenue and recent data indicating Germany’s descent into recession have further restricted Lindner’s maneuverability. Consequently, the budget cuts will be implemented across all government ministries, excluding the defense and labor and welfare sectors.
These plans have already sparked heated disputes among politicians within the three-party ruling coalition, which consists of Chancellor Olaf Scholz’s Social Democrats (SPD), the Greens, and Lindner’s Free Democratic Party (FDP).
Taking a firm stance, Scholz asserted, “The budget faces significant challenges due to the fact that many have grown accustomed to substantial spending in recent years.” He further emphasized the government’s commitment to formulating budgets that do not rely on additional credit-financed funds to tackle crises but rather prioritize the future of the nation.
Criticism of the proposed cuts has arisen from labor unions, who argue that Lindner’s insistence on returning to the debt brake, which limits borrowing to a fraction of the GDP, is impeding progress and development, particularly in light of multiple challenges such as the transition to renewable energy and social concerns. Stefan Körzell of the German Federation of Trade Unions remarked, “This approach is placing a constraint on our future.”
It is worth noting that the scale of the cuts exceeds the initial estimates mentioned by Green Economy Minister Robert Habeck last month, which ranged from €18 billion to €22 billion.
Nonetheless, despite the budget cuts, the government still intends to incur €16.6 billion of new debt in the upcoming year, which is the maximum amount allowed under the debt brake regulation. The budget for the following year will be presented to Parliament for approval in the autumn.
One of the major points of contention arises from the budget cuts imposed on Family Minister Lisa Paus, which the Greens argue are responsible for the reduction in Germany’s generous parental leave allowance of up to 14 months for couples. The dispute has escalated to the point where lawmakers from the Greens and FDP have shared confidential government correspondence on Twitter, each attempting to assign blame for the cuts. Finance Minister Lindner also took to Twitter to suggest that Paus could have identified savings in other areas.
Although the cuts primarily affect households with annual incomes exceeding €150,000, who will no longer have access to the childraising allowance, the Greens express concern that this will result in fewer high-earning men taking breaks from work, thereby placing a greater burden of childcare on women.
The opposition has also criticized the plan, with Mario Czaja, the secretary-general of the center-right CDU, describing it as a “slap in the face” for working parents that effectively creates a two-tier society among hard-working families.
However, Chancellor Scholz emphasizes that his government remains committed to implementing one of the Greens’ key initiatives—a basic allowance for children from low-income households, slated to be introduced in 2025, although the financing for this remains uncertain.
The health sector is another heavily impacted area, with the health minister, Karl Lauterbach, announcing the elimination of a state subsidy for long-term care insurance.
Spending cuts also extend to education, which will curtail the government’s ability to finance student funds, and transportation, resulting in reduced funding for the renovation of the country’s deteriorating railway network. Germany’s railway operator, Deutsche Bahn, has indicated a requirement of €45 billion in fresh funds by 2027 for upgrades and to accommodate increased passenger numbers—an objective aligned with the government’s aim to promote rail travel and reduce carbon emissions. However, Lindner’s budget plans only allocate approximately €12 billion for the period spanning 2024 to 2027.
While the government intends to access a specialized climate fund to allocate additional funds to the railway sector, there remains uncertainty regarding whether the financial capacity of this fund will be sufficient to meet the needs of Deutsche Bahn. This is because the fund is also utilized for other purposes, such as providing a €10 billion subsidy for a new Intel chip plant in eastern Germany.
In contrast to other sectors, the defense budget of Germany will be spared from cuts in the coming year, experiencing a slight increase from €50 billion to nearly €52 billion. However, this increase is projected to only account for inflation-related cost escalation and is unlikely to cover the necessary investments required to enhance Germany’s military capabilities in the face of Russia’s conflict in Ukraine and Scholz’s proclaimed shift in foreign and defense policy, known as the Zeitenwende.
Currently, the government plans to utilize a specialized €100 billion fund for military armament to finance these investments and fulfill NATO’s objective of allocating at least 2 percent of economic output to defense starting from the upcoming year. However, there is still a lack of clarity regarding how Germany intends to sustainably meet the NATO 2 percent target once the resources of this special fund begin to deplete after 2026.
Christian Mölling from the German Council on Foreign Relations questioned the feasibility of fulfilling NATO commitments with the proposed budget plans and urged Defense Minister Boris Pistorius to provide an explanation.
Scholz argued in Parliament that, in the long run, “we have to finance these [defense] expenditures from the [regular] budget,” indicating a need to find sustainable funding sources beyond specialized funds.
