For fiscal year 2025, the federal government plans to spend 488.6 billion euros (-0.1 percent compared to 2024). Net borrowing is expected to total 51.3 billion euros, which corresponds to about one-tenth of the total budget (+2.0 percent). On the revenue side, the federal government expects tax revenues of 388.2 billion euros (+3.7 percent) and estimates capital expenditures at 81 billion euros (+14.4 percent).

Compliance with the Debt Brake, Growth Initiative, and Financing Gap

In 2025, the federal government will once again comply with the debt brake—as it did in 2024—after four years of exceptions, thereby fully utilizing the regular debt allowance. Nevertheless, there remains a need for fiscal policy action in financial planning. A financing gap of approximately 12 billion euros remains for the year 2025. In 2026 and 2027, the reported gap amounts to 13 billion euros in each year, while in 2028, a need for action of around 38.9 billion euros arises.

The Growth Initiative, which was also adopted, is intended to immediately provide the German economy with a boost to increase economic momentum. The Tax Development Act, whose parliamentary proceedings will begin after the summer recess, is already setting the initial course. The federal government expects additional tax revenue of 6 billion euros, in part from the measures included in the Growth Initiative.

2024 Supplementary Budget Approved

In light of a weaker economic recovery than anticipated when the 2024 budget was adopted, the federal government has agreed on an 11-billion-euro supplemental budget for 2024 and adjusted net borrowing accordingly.

Expenditures: Labor and Social Affairs Receive the Largest Share

The largest individual budget section remains that of the Federal Ministry of Labor and Social Affairs. At 179.3 billion euros, its expenditures account for approximately 37 percent of the total budget. This is followed by the defense budget (excluding the Bundeswehr’s special fund) with expenditures of 53.3 billion euros (about 11 percent of the total budget; 2024: approximately 52 billion euros), ahead of the budget of the Federal Ministry of Digital and Transportation, with expenditures of 49.7 billion euros (about 10 percent of the total budget; 2024: approximately 44.4 billion euros).

Bundeswehr Special Funds and the Two-Percent Target

The budget exceeds the two percent of gross domestic product (GDP) threshold for meeting NATO capability targets in both 2025 and the fiscal planning years through 2028. The Bundeswehr’s special fund is expected to be exhausted by 2027, meaning that starting in 2028, the necessary funds will have to be covered entirely by the federal budget.

Prioritizing Investment and Consolidation

Fiscal policy must ensure that the efficient use of public funds and a prioritization of investments improve the quality of public finances in order to promote economic recovery and strengthen long-term sustainability. Cyclically appropriate budget consolidation is necessary to build fiscal buffers for future crises and preserve flexibility for financing future tasks. However, spending cuts aimed at fiscal consolidation and compliance with the debt brake must not jeopardize the sustainable financing of the ramp-up in public investment. Tax cuts and the reduction of excessive government regulations promote growth and strengthen economic growth.

Further Legislative Process

The Bundestag will consider the government’s draft bill in its first reading during the first plenary sessions following the summer recess in mid-September. Subsequently, the Budget Committee will examine the draft in detail and develop proposed amendments, which will be compiled into a final draft resolution during the reconciliation session in mid-November. The second and third readings, followed by the final vote, will then take place during the session week at the end of November.