Habeck presents the federal government’s spring projection

Economics Minister Habeck is presenting the federal government’s spring projection today. Forecasts show that Germany remains at the bottom of the list among the large industrialized countries. What does this mean for the budget?

The numbers don’t bode well. All economic forecasts from the past few weeks had one thing in common: the growth prospects for the German economy remain poor for the time being. And according to Oliver Holtemöller, deputy head of the Leibniz Institute for Economic Research in Halle, the latest figures that Economics Minister Robert Habeck will present today will not look any better:

The economic research institutes corrected their figures downwards just a month ago. They only expect mini-growth of 0.1 percent this year and an increase of 1.4 percent for 2025. The federal government’s spring projection is unlikely to deviate much from this. This means: The German economy is only slowly gaining momentum after last year’s recession, which was caused, among other things, by high energy prices, inflation and high interest rates as well as lower international competitiveness, which is continuing.

basis for Tax estimate in May

So far, so bad. The special thing about today’s spring projection is that it will form the basis for the tax estimate in May. This tax estimate in turn becomes crucial for the federal government’s budget. The question is how much money the federal government will probably have available from tax revenue in the coming year.

According to economic researcher Holtemöller, in principle tax revenues are lower “when the economy is doing worse. This also applies to social security contributions, which are also relevant for the national budget.”

More Taking on debt possible

However, other factors also play a role in dampening the slump in tax revenue, says Holtemöller: “The labor market is still very robust in Germany and wage increases are also relevant. If we have good collective bargaining agreements, the state will also benefit from wage tax revenue.”

In addition, the continued increase in inflation has the effect that some government revenues are nominally higher. Holtemöller therefore does not expect that the spring projection will have far-reaching consequences for tax estimates and the federal budget.

There is also another effect: even if the debt brake is adhered to, the federal government can take out 0.35 percent of gross domestic product in loans. According to the Ifo Institute in Munich, this currently corresponds to around 14 to 15 billion euros. And the so-called economic component of the debt brake stipulates that the leeway becomes slightly larger if the economy is doing poorly. According to the Ifo assessment, this could enable around six billion euros in additional loans in 2025. So all in all around 20 billion euros. The federal government’s financial plan currently envisages net borrowing of 16 billion euros next year.

Union: Not a revenue, but a Spending problem

From the perspective of Christian Haase, the budget spokesman for the CDU/CSU parliamentary group, the federal government does not have a revenue problem, but rather a spending problem. The spring projection and the subsequent tax estimate will not change this. That’s why, from Haase’s point of view, it’s now a matter of looking at the spending in the federal budget and asking: “Can and do we want to afford this in the future?”

The two chief budget officers of the FDP and the Greens, Otto Fricke and Sven-Christian Kindler, also do not expect any major shifts as a result of the spring projection and tax estimates. But drawing up the federal budget will be difficult. There is currently a gap of around 25 billion euros between income and expected spending requirements. However, the ministries still have until May 2nd to present concrete figures.

FDP householder Fricke expects that Defense Minister Boris Pistorius, for example, will report greater demand. “The FDP transport minister will probably also say: ‘I have to invest more and therefore need more money’. And the foreign minister from the Greens will also say, due to the many international crises: ‘I need more money for humanitarian aid’,” presumably Fricke. However, he emphasizes that additional spending in one place must be offset by cuts in another.

Greens: Warning of “brutal austerity measures”

The Green Party’s budget policy spokesman, Kindler, warns against “brutal austerity measures in a socially and economically difficult situation.” The aim is to strengthen public investments in particular and to keep social justice in mind. Despite the major differences within the traffic light coalition, especially in financial policy, Kindler is confident: “The government and the traffic light coalition will issue a good and solid budget. You can solve the budget problems if you want.”

According to the schedule, the federal cabinet is supposed to approve the draft budget for 2025 on July 3rd. Before that, the tax estimation working group must give its assessment of revenue expectations on May 16th – based on the economic prospects from the spring projection. One is the technical approach, the other is the question of whether the coalition will find the strength to agree on a budget again.