The traffic light coalition must save more billions in 2025 than most ministries will receive. It can only do this by cutting pensions or risking the future of the country. Some consider the only way out, to avoid both, to be even more dangerous.
According to his previous plans, Finance Minister Christian Lindner (FDP) wanted to save around 25 billion euros in 2025, reports “Bild”. Other sources give similar figures.
The amounts correspond to around five percent of the entire 2024 federal budget of 477 billion euros, i.e. around one twentieth.
The plan hits individual ministries hard: Foreign Minister Annalena Baerbock (Greens), Lindner wants to cut every fifth euro, and Transport Minister Volker Wissing (FDP) wants to cut every eighth euro. A challenge for both, who are fighting against international conflicts and a crumbling infrastructure. According to “Spiegel”, Baerbock would have to cut humanitarian aid, for example for the Gaza Strip, by around half.
Some ministers are opposing Lindner’s austerity plans. Baerbock, Development Minister Svenja Schulze (SPD) and Interior Minister Nancy Faeser (SPD) already wanted more money compared to Lindner’s previous budgets.
Tensions between Lindner and his counterparts are likely to increase: tax estimators have revised the expected tax revenue for 2025 downwards. The federal, state and local governments have to make do with 22 billion euros less than expected. Eleven billion euros of this goes to the federal government.
Because of the debt brake, the federal government is not allowed to close the gap with loans. Finance Minister Linder wants to cut the eleven billion euros – almost 50 percent in addition to the previous savings – from the ministers.
The state has a spending problem, not a revenue problem, says Lindner with regard to rebellious ministers. The question is: Where is the government cutting?
The most high-profile austerity debates in particular achieve little: the ministries of the rebelling ministers together receive less than Linder will have to save in 2025.
An example: The cycle paths in Peru, which were much discussed in public and were co-financed by development aid, received 20 million euros, said a spokeswoman for the “Tagesschau”. This corresponds to around one two-thousandth of the amount to be saved. The ministry supports many other projects through loans and gets the money back.
As important as it is for ministries to spend taxpayers’ money carefully, cuts in these areas will not solve the budget problems.
The federal government’s options for major savings remain limited. The mathematically simplest option is provided by the Ministry of Labor and Social Affairs of Hubertus Heil (SPD).
In 2024, the Ministry of Labor will receive by far the largest amount from the federal budget: 176 billion euros. In order to save a total of 36 billion euros, even the financially largest ministry would have to cut every fifth euro. A challenge.
The next largest expenditure items in the federal budget also make cuts difficult for Linder:
In any case, all other departments receive too little money to make any significant contributions to the 36 billion euro austerity package.
Among the many poor savings opportunities, the Ministry of Labour and Social Affairs stands out because it offers at least the theoretical possibility for sufficient savings.
The ministry allocates by far the largest part of its expenditure to pensions: almost three quarters, around 127 billion euros. If the government saves at this point, it will either have to cut pensions or increase contributions.
Germany is therefore faced with a generational question: Is the government saving for older people by cutting their pensions, or for younger people by cutting future investments in infrastructure, education and the economy? Or both?
The Prognos Institute has calculated on behalf of the New Social Market Economy Initiative that an immediate end to retirement at the age of 63 will save the federal government eight billion euros in 2025. Even if the government only uses this money to reduce its own pension contributions and not the contributions of employees, this drastic intervention does not even close a quarter of the budget hole.
Savings on citizens’ money also remain difficult: in 2024, the ministry is planning around 38 billion euros – including subsidies for housing and heating. This corresponds almost exactly to the shortfall. The traffic light would have to put unemployed people out on the streets without replacement in order to close their budget gap using citizens’ money.
However, current law links citizens’ money to the subsistence level. This leaves little room for maneuver when it comes to height. Cutting the amounts by half is likely to fail at the Federal Constitutional Court.
If tax revenues do not increase significantly in the coming years, the budget crisis will worsen in the future.
Defense Minister Boris Pistorius (SPD)’s budget is currently tight: Lindner is one of the few ministers to grant him more money in 2025 than in 2024, just under one percent. Because, according to current forecasts, the economy will grow faster than military spending at around 1.4 percent in the same period, Germany is moving further away from the goal of investing two percent of its economic output in armaments despite the increase.
The federal government is still making up for the gap through the Bundeswehr’s 100 billion special fund. If this is used up in three to four years, the Federal Republic will have to increase its defense budget from the current 52 billion euros by a mid-double-digit billion amount. Then the question of spending arises again: save on pensions or on infrastructure?
Instead of saving money, the federal government could also generate new revenue to plug the budget hole.
Some options spare private individuals almost entirely: a financial transaction tax of 0.2 percent on high-frequency trading in stocks and derivatives would bring Germany three to five billion euros in revenue, the Kiel Institute for Economic Affairs calculated.
Not a panacea, but a start. However, a corresponding initiative by the Federal Republic and France at the federal level has not yet been implemented.
Only large investors such as banks engage in high-frequency trading. This means that end customers are more likely to incur additional costs because banks buy shares quickly and resell them to customers at a minimal profit as soon as they place an order.
The federal government avoids many budget problems when it balances its budget with new debt. The debt brake currently limits this possibility. Representatives of the SPD and the Greens as well as numerous renowned economic experts are therefore calling for a reform of the debt brake.
The FDP and CDU are opposed to this step. Even if the change only allows new debt for investments, they fear that future governments will describe all spending as investments and forget about sound budget policy.
This fear is not unfounded: observers cite spending on infrastructure, business and education, among other things, as examples of investments. In the 2024 federal budget, these expenses account for around a sixth of total expenses. Anyone who excludes investments from the debt brake may be allowing a lot of debt.
For the time being, there are no signs of a two-thirds majority in the Bundestag that would be necessary to change the debt brake.
Recently, Michael Hüther, Director of the German Economic Institute (IW), and Sebastian Dullien, Scientific Director of the Institute for Macroeconomics and Business Cycle Research (IMK), proposed a compromise: a new special fund should provide 60 billion euros in loans annually over ten years for investments in roads, schools and energy projects.
In contrast to the debt brake, this solution limits spending more clearly, remains transparent and would be easier to implement politically.
Experts believe that Germany can afford this. Your plan will bring the country more economic growth than new debt, which will actually reduce the debt ratio.
The traffic light could easily afford all the expenses if it didn’t lose billions every year through tax evasion and illegal work. Experts speak of failures amounting to 100 billion euros annually.
In addition, around 20 billion euros are lost each year through welfare fraud: some illegal workers also receive citizen’s allowance. Other recipients lie and claim more than they are entitled to.
That’s a total of around 120 billion euros that the state is losing through fraud. More than enough to fill all the holes and invest heavily in the future.
The authorities are also hoping for artificial intelligence to detect fraud more quickly. In principle, combating it remains difficult.
That’s why, for the time being, everyone has to start with themselves: If everyone in Germany pays their cleaners and tradesmen correctly, the rest of the country can avoid young-versus-old distribution battles. Who wants an adequate pension – and who doesn’t – decides in this way whether the state can afford it.