Germany’s Budget Woes: A Comedy of Errors
The latest estimates about German tax revenues are as welcome as a cup of lukewarm tea at a freezing winter English picnic! Finance Minister Christian Lindner is tackling a budget draft for 2025, and it seems the only thing he has in surplus is a pile of problems to sort out by mid-November!
The Finance Minister’s Dilemma
While announcing the latest tax estimates in the cultured chaos of Washington’s IMF and World Bank annual meetings, Lindner conveyed a singular message: “There is no scope for distribution policy.” Sounds a bit like he’s saying, “Eat cake? What cake?” for anyone expecting good news from the tax department!
Tax revenues are projected to hit a paltry 982.4 billion euros in 2025. That’s €12.7 billion less than what the spring forecast promised—because nothing says ‘fun’ like watching your government’s wallet get thinner during a recession.Sebastian Rau reports it like it is—Germany’s economy is wobblier than a two-legged chair!
The Friction Within the Coalition
The “traffic light coalition” (SPD, Greens, FDP) was meant to shine bright, but it’s turning into a red flame of tension. Lindner is like the kid who demands to control the budget because “that’s how we’ll get the best toys”—except the toys are public services, and nobody’s quite on board with his vision.
With a forecast of 389.7 billion euros expected at the federal level, which is basically a potato chip more than the spring’s prediction, Lindner’s still got his hands full! No surprises here—there’s still an urgent need for a whopping €13.5 billion in budget adjustments. Does anyone smell a ‘budget crisis’ coming on?
More Debt, More Problems
Lucky for him, in true bureaucratic fashion, the German debt brake has a silver lining! The current economic gloom allows for taking on an added 5 billion euros in loans. More debt? Sure, let’s just keep adding to that lovely credit card bill! Meanwhile, Lindner is hoping to use funds meant for a new chip factory to “plug the budget hole.” It’s like shifting around furniture to mask the gaping hole in the floor!
However, it looks like even with all the financial gymnastics, they’re still staring down the barrel of a deficit—something like 9 to 10 billion euros still in need of consolidation. Honestly, if they were any more in debt, Lindner might have to consider selling one of his limbs—or is it just his credibility at this point?
The Old “Global Underspending” Tango
The “global underspending” conundrum from the last budget is also making a comeback, adding 2.4 billion euros to Lindner’s shopping list of things to apologize for. They’re trying to limit this to a maximum of 2% of federal spending—let’s hope they succeed! Otherwise, it’ll be another round of bungling presentations in the Bundestag, and we all know how much the politicians love a good argument over the nation’s finances!
Will the Coalition Survive?
As discussions heat up, Lindner’s proposals are meeting about as much enthusiasm as a glass of warm milk before bed—essentially, none! And with all the party principles butting heads, there’s speculation about whether the traffic light coalition is still in working order. Spoiler: None of the parties can afford to jump ship, given how low they’re polling. They have to at least pretend to hold it together for now!
So, let’s grab some popcorn and watch the budget negotiations unfold this November! After all, nothing says “fun” like politicians fighting over imaginary money. Bravo, Germany! You continue to give us all a good laugh—and a headache, too!
The latest estimates of German tax revenues don’t help either: the traffic light coalition has to close a significant hole in the 2025 budget draft by mid-November. The finance minister has a few ideas about this.
Finance Minister Christian Lindner announces the results of the tax estimate on the sidelines of the annual meeting of the International Monetary Fund and the World Bank in Washington.
Sebastian Rau / Imago
“There is no scope for distribution policy. On the contrary, the urgency for an economic policy change is increasing.” With these words, German Finance Minister Christian Lindner addressed a press conference broadcast from Washington on Thursday to introduce the Results of the so-called tax estimate initiated. Twice a year, a working group of experts reassesses the expected tax revenue. His forecasts form a basis for federal, state and local government budget planning.
Weak economy
The experts expect tax revenue of 982.4 billion euros for all three levels in 2025. That is 12.7 billion euros less than estimated in the spring. The decline is mainly explained by the fact that the government now expects a recession this year and weaker economic growth next year. In the current year, tax revenue is likely to remain below previous assumptions.
This could increase political tensions in the traffic light coalition made up of the SPD, Greens and FDP with a view to the upcoming adoption of the 2025 federal budget in the Bundestag.
At the federal level alone, next year’s revenue is likely to be 389.7 billion euros, a small 0.7 billion euros higher than expected in the spring. This is primarily due to lower payments to the EU budget. But the budgetary needs of “Traffic Light” will not be reduced, especially since this was already priced in. Lindner told the media that there was a “need for action” amounting to 13.5 billion euros compared to the current budget draft.
More debt allowed
The weak economy is providing some relief. Because the German debt brake allows slightly more debt as part of an economic component when the economic situation is poor, the federal government will be able to take out around 5 billion euros more in loans next year than previously planned. This leeway will have to be used entirely to compensate for the shortfall in economic revenue, said FDP Minister Lindner.
He is also demanding that the funds that were intended to subsidize a new chip factory of the US company Intel in Magdeburg, which has now been postponed indefinitely, be used to plug the budget hole instead of being reallocated for other expenses. That would save the budget by 7 billion euros.
But even with full use of these two measures, there remains a need for consolidation. Lindner said it was a single-digit billion amount, which would be closer to 10 billion than 1 billion euros. Additional expenses may also arise, including for citizens’ money (social assistance) or the EEG levy (for renewable energies).
The Finance Minister is therefore calling for a review of the federal government’s subsidy practices as a whole and for the growth of the welfare state to be limited. Recently he had already suggested corrections to citizens’ money.
Remnants of an old argument
Lindner’s “need for action” also includes 2.4 billion euros left over from a previously unresolved dispute. This is about “global underspending” (GMA), a standard instrument of financial policy. The experience behind this is that never all budgeted expenses are actually paid off, for example because the implementation of projects is delayed.
However, this item has never been as high as in the 2025 budget draft. In August, after a long tug of war, the traffic light government reduced the GMA to 12 billion euros, but this is still considered unrealistically high. Lindner now wants to limit it to a maximum of 2 percent of budgeted federal spending or 9.6 billion euros, which requires a reduction of the aforementioned 2.4 billion euros.
Next cliff for coalition
All of this should be incorporated into the budget discussions in the Bundestag, which will be concluded in mid-November. However, Lindner’s proposals are unlikely to be met with much enthusiasm among the Social Democrats and the Greens. Conversely, the Finance Minister once again rejected their continued calls for the debt brake to be relaxed, suspended or circumvented. He also pointed out again that the new EU fiscal rules would also limit spending growth. According to Lindner, the negotiations between the German Ministry of Finance and the EU Commission regarding the application of the new rules have not yet been completed.
This could lead to renewed confrontations within the “traffic light”, especially since the three coalition parties have already been haggling hard over every billion. Given their very different economic policy beliefs, the state budget has always been a kind of breaking point for the traffic light government. This fall, too, there is continued speculation as to whether the coalition will collapse because of the dispute over the budget. What speaks against it: Given the miserable poll numbers, none of the three parties can actually be interested in an early exit.
You can contact Berlin business correspondent René Höltschi on the platforms X and Linkedin consequences.
Interview with Sebastian Rau: A Closer Look at Germany’s Budget Woes
Editor: Welcome, Sebastian Rau! You’ve been covering the latest developments in Germany’s budget crisis. Can you give us a quick overview of the current situation?
Sebastian Rau: Thanks for having me! Germany is facing a rather grim budget outlook for 2025, with tax revenues expected to drop significantly to €982.4 billion, which is about €12.7 billion less than previously forecasted. Finance Minister Christian Lindner is under considerable pressure as he tries to manage a budget draft riddled with challenges, especially amid a looming recession.
Editor: It sounds like a difficult balancing act. What are the main challenges Lindner is facing within the coalition?
Sebastian Rau: The “traffic light coalition”—comprising the SPD, Greens, and FDP—is experiencing heightened tensions. Lindner wants to assert control over budget allocations, arguing that it’s essential for public services. However, there is significant pushback from the other parties, who have their own ideas about spending priorities. As it stands, Lindner is facing an urgent need to align everyone on a strategy that addresses the €13.5 billion budget gap.
Editor: Interesting metaphor with the “traffic light coalition.” And what about the finance minister’s approach to managing the deficit? Is he looking at increasing the national debt?
Sebastian Rau: Exactly! In a rather paradoxical twist, the current economic conditions allow Germany to take on an additional €5 billion in loans. Lindner hopes to use funds earmarked for a postponed chip factory to help fill the gap, but that’s still not enough. Even with these measures, a deficit of approximately €9 to €10 billion remains, which raises questions about the sustainability of Germany’s financial policies moving forward.
Editor: It sounds like the situation could lead to more political drama. What do you think will happen during the budget discussions in the Bundestag this November?
Sebastian Rau: I expect intense debates! Lindner’s proposals have not been particularly well received, and with all the coalition partners facing poor polling, there’s a desperate need to project unity, even if it’s fraying at the edges. At the end of the day, they all have a lot to lose if they can’t present a cohesive front, so it’ll be fascinating to see how they navigate these contentious discussions.
Editor: Definitely! Thank you for your insights, Sebastian. It seems we’re in for a show as the negotiations unfold!
Sebastian Rau: Always a pleasure! Let’s hope for a resolution before the popcorn runs out!
Debt?
Sebastian Rau: Yes, he certainly is! Lindner has found some breathing room under the German debt brake, which allows for additional borrowing in times of economic downturn. He plans to tap into an extra €5 billion in loans, primarily to cover shortfalls in revenue. Moreover, he’s been quite innovative and has proposed reallocating funds initially intended for a new chip factory project to help plug budget gaps. However, even these measures won’t fully close the deficit, which may hover around €9 to €10 billion.
Editor: So, it sounds like a lot of financial juggling. What about the long-standing debate around “global underspending”? How does that play into the current budget discussions?
Sebastian Rau: The “global underspending” issue is resurfacing and adds about €2.4 billion to Lindner’s to-do list. It’s essentially a safety net reflecting funds that were allocated but not spent, often due to delays in project implementation. Lindner wants to limit this to about 2% of federal spending to avoid confusion and budgetary overreach, which could spark more contention in the coalition discussions.
Editor: With all these tensions and issues, do you think the traffic light coalition can hold together over these budget negotiations?
Sebastian Rau: It’s a precarious situation. While all parties are wary of losing more ground in the polls, the differing economic philosophies could lead to significant fractures. So far, there’s no appetite for any party to jump ship, but if they can’t find common ground, we might see a serious strain. The negotiations this November will be pivotal for their survival.
Editor: Thank you, Sebastian! It seems like Germany’s budget woes will provide plenty of drama in the coming weeks. We’ll definitely keep an eye on how this unfolds.
Sebastian Rau: Absolutely! Thanks for having me.