German 2025 budget draft has a 17 billion euros hole – sources

By Maria Martinez, Holger Hansen and Christian Kraemer

BERLIN (Reuters) -The German cabinet plans to approve its draft for the 2025 budget on Wednesday, but there is still a gap of 17 billion euros ($18.55 billion) which needs to be filled, finance ministry sources said on Monday.

Germany’s coalition government this month clinched a 2025 budget deal that will stick to the country’s tight borrowing rules while offering a package to rev up stuttering economic growth and finance a military overhaul to meet NATO targets.

The budget for 2025 will include a record 78 billion euros of investments, net borrowing of 43.8 billion euros and a total budget size of 481 billion euros, according to the sources, respecting a constitutionally-enshrined cap on spending, known as the debt brake.

The budget for 2025 comes with the mid-term financial planning until 2028, the year when the armed forces special fund to meet NATO’s minimum spending goals is due to run out.

In 2028, there is a gap of 39 billion euros in the regular budget, with 28 billion euros needed to comply with the NATO target without the special fund, the sources said.

According to finance ministry sources, there is a financing gap of 13 billion euros in 2026 and 2027.

Finance Minister Christian Lindner said in the presentation of the agreement that it was “by no means” an austerity budget, but focused on certain priorities, including the military, with defence spending above the NATO target of 2% of GDP.

Days after Russia’s 2022 invasion of Ukraine, Chancellor Olaf Scholz announced a “Zeitenwende” – German for historic turning point – with a 100-billion-euro special fund to bring the military up to speed.

From this special fund, there will be 22.0 billion euros more for defence, plus 53.3 billion euros in the regular budget, still less than that sought by Defence Minister Boris Pistorius.

In an effort to foster growth, the government will offer tax cuts to the value of 23 billion euros, with investments in various areas aimed at cushioning people and companies from a cost of living crisis.

Priority will also be given to education, research, science, and families. The budget earmarks 13 billion euros for research and two billion euros for childcare, among other measures.

The government also plans to pass a supplementary budget for the current year on Wednesday with 11 billion euros in additional borrowing, making a total of 50.3 billion in net borrowing, the sources said.

The structural component of the debt brake allows for a limited deficit spending of 0.35% of gross domestic product. Its cyclical component nevertheless allows for additional borrowing in economic downturns.

Because an autumn 2023 forecast of 4.4% growth in 2024 was lowered to 3.0% in the spring, the cyclical component allows extra borrowing for the additional burdens of the current year.

($1 = 0.9166 euros)

(Reporting by Maria Martinez, Holger Hansen and Christian Kraemer; editing by Kirsti Knolle and Ros Russell)