In the struggle over the federal budget, it is now clear: There will be no more money from tax revenue. The finance minister is pursuing austerity measures and emphasizes: Money doesn’t fall from the sky.
The budget dispute in the federal government is threatening to worsen due to significantly lower tax revenues than previously expected. The tax estimators assume that the federal government alone can expect 11 billion euros less for the coming year than was assumed in the fall. Finance Minister Christian Lindner called on the cabinet to exercise budget discipline.
“What I repeat almost like a mantra in view of the exorbitant political wishes is now in black and white,” said the FDP politician in Berlin. There is unlikely to be any new financial flexibility. “The result of the tax estimate destroys the illusion of all those who may have suspected that the money would just fall from the sky.”
Significantly lower tax revenue
The weak economy in Germany is leaving its mark: federal, state and local tax revenues will be significantly lower in the coming years than expected last autumn. The federal government had significantly reduced its economic forecast. This year it is only assuming a mini-growth of 0.3 percent; for 2025 it expects an increase of 1.0 percent.
According to the new tax assessment, the state – federal, state and local governments – will receive 995.2 billion euros in the coming year. That is 21.9 billion euros less than expected in the fall. In the remaining years of the estimation period up to 2028, there will also be significant reductions in revenue compared to the last estimate – a total of 80.7 billion euros. According to the Ministry of Finance, tax revenue is on average around 16 billion euros lower annually compared to the expectation from October 2023.
The tax estimate’s forecast is an important basis for discussions on the 2025 federal budget. Whether savings need to be made or whether there is room for additional spending depends, among other things, on the tax estimate. The tax estimation working group with experts from the federal, state and local governments, among others, meets twice a year, in spring and autumn.
Lindner insists on austerity measures
The finance minister called the current tax estimate a “reality check” for the 2025 federal budget. “We have to say goodbye to unrealistic wishes and push forward with budget consolidation. This requires discipline and willpower.” His message: The state does not have a revenue problem, but rather a spending problem. That’s why spending needs to be prioritized.
Lindner once again spoke out in favor of an “economic turnaround” in order to stimulate growth. “Only with strong economic development can we create prosperity and stable state finances.” Bureaucracy must be reduced, tax competition conditions improved – and hard work and performance be rewarded more. The welfare state does not provide enough incentive to work.
Tough fight for the federal budget
The negotiations on the 2025 federal budget were difficult even before the new tax estimate – as Lindner also made clear. But they are now likely to become even more difficult.
The minister spoke of a gap in the low double-digit billion range. He has put in place guardrails: The debt brake anchored in the Basic Law must be adhered to at all costs – many in the SPD and Greens see it differently. Lindner said that additional support for Ukraine could also be provided without an exception to the debt brake.
In that case, major shifts in the budget would probably be necessary. The debt brake stipulates that new debts may only be incurred to a limited extent. However, given the weak economy, the scope here is increasing.
Lindner is tough
Several federal ministries do not want to adhere to Lindner’s austerity guidelines. The Finance Minister said he did not accept some submissions. Tough discussions are expected about the budget of Defense Minister Boris Pistorius (SPD) and Development Minister Svenja Schulze (SPD).
There are additional risks. Lindner referred to possible billions in additional spending to promote renewable energies. He is sticking to the goal of reaching an agreement in the cabinet on the 2025 budget by the beginning of July. Then there will be deliberations in the Bundestag, which are likely to last well into the fall.
Household marathon
“The tax estimate will not make the federal budget preparation process any easier,” said the budget policy spokesman for the SPD parliamentary group, Dennis Rohde. “There is a long way to go, but budget policy is a marathon, not a sprint.” The FDP chief budget officer Otto Fricke emphasized that Germany must become an attractive investment location again.
There is still no agreement within the federal government on how exactly this should be achieved. The FDP rejects demands from Federal Economics Minister Robert Habeck (Greens) about debt-financed tax relief.
The Greens’ chief budget officer Sven-Christian Kindler warned the FDP against an “austerity budget” on the backs of long-term employees, poor people or at the expense of climate protection.
Union calls for a change of course
The Union’s chief budget officer Christian Haase said: “The tax collapse is a clear warning signal.” The political sadness must end. “The traffic light experiment and the resulting economic weakness are increasingly becoming a risk to Germany’s prosperity.” CDU leader Friedrich Merz called for spending discipline: “The question is: Will we be able to get by in our state with the taxes and duties that have been levied?”
The German Association of Cities was concerned. “The bottom line is that the cities will have less money available for investments,” said Managing Director Helmut Dedy. “On the one hand, tax revenues are increasing significantly less than expected, and on the other hand, rising costs are completely eating up the additional revenue.”