The German government has approved a draft of the 2025 budget. How will the country spend its money for the remainder of 2025? How much will go towards housing, Deutsche Bahn, defence and other infrastructure?
Germany’s federal cabinet has approved a draft of the country’s 2025 budget. A 2025 budget has been a top priority for the CDU-SPD coalition government since it took office in February.
Finance Minister Lars Klingbeil (SPD) and other ministers approved spending for 2025 to the tune of 503 billion euros, with plans for record investments of 115,7 billion euros.
Ministers also outlined budget figures until 2029. The country plans to spend 519,5 billion euros in 2026, 512,7 billion in 2027, 550,4 billion in 2028 and 573,8 billion in 2029.
After the previous SPD-Greens-FDP coalition couldn’t agree on how to fill gaps in its budget and consequently collapsed in November 2024, the Bundestag implemented the “provisional budget management” clause of the German Basic Law (Grundgesetz).
The “provisional budget” has been in place for all of 2025 so far. When the CDU-SPD government took office in February, the clause allowed the new coalition to continue funding all existing, basic institutions, construction projects and services, fulfil any legal funding obligations and fund new projects that have already been agreed upon.
Part of the reason the previous SPD-Greens-FDP coalition couldn’t agree on a budget for so long was because of Germany’s debt brake (Schuldenbremse). The Schuldenbremse rules that Germany’s annual debt can't exceed 0,35 percent of its annual GDP.
Then, in March 2025, members of the new parliament voted to relax the debt brake, increase defence spending, and create a special 500-billion-euro infrastructure fund. This vote paved the way for the budget that Klingbeil has just announced.
Relaxing the debt brake means that Germany can now borrow more money to fund its expenses. As such, Klingbeil’s budget is very similar to that outlined by the SPD-Greens-FDP coalition before its collapse. 81,8 billion euros will come from net borrowing, and 61,3 billion euros of the 503 billion-euro budget will come from debt-financed funds.
Klingbeil has warned that even though Germany is taking on more debt, most working people shouldn’t hold their breath for eased financial stress from investment in social projects.
So, what details do we know about how Germany’s 2025 budget will be spent? And how will it impact our everyday lives?
Klingbeil says that his budget will fund more affordable and environmentally friendly housing. 20 billion euros have been earmarked for housing construction until 2028, including a record 3,5 billion euros for social housing construction. But according to Die Zeit, even the record funding will be just a drop in the ocean for solving the country’s housing shortage.
Housing benefit payments (Wohngeld) will increase by 15% in 2025.
As is often the case, funding Germany’s social security and pension system will be the largest single expense in the budget. In 2025, 190 billion euros will be invested in the social security and pension system, 8% more than in 2024.
However, less money will go towards funding the German healthcare system, 16,4 billion in 2025 compared to 16,7 billion in 2024.
Personal income tax rates will increase. Personal income tax rates outline the amount that workers in Germany can earn before their income is taxed. This means that employees will receive a larger part of their paycheck in their bank account.
Currently, an annual income of up to 12.096 euros is tax-free. In 2025, this will increase to 12.084 euros and in 2026, to 12.336 euros.
Chancellor Friedrich Merz (CDU) managed to push his debt brake reform through the Bundestag with the support of the Greens, but on their condition that a greater portion of the country’s budget would be allocated to climate change response policies.
A total of 100 billion euros has been allocated to climate-friendly building development, including housing and bridges. The money will also be used to reduce consumer gas prices. This means that, much to the dismay of the Greens, who say they have been “misled”, the fund will go towards subsidising fossil fuels.
166 billion euros will be spent on improving transport infrastructure, with 107 billion euros of this earmarked for Deutsche Bahn and other German rail services.
Germany will invest a record amount of money in its military and defence. After funding the social security system, this is the second-largest single expense in the budget.
Against the backdrop of increasing global tensions, defence spending will be 2,4% of gross domestic product (GDP). The aim is to increase defence spending to 3,5% of GDP by 2029, in line with NATO targets.
While the German government has approved Klingbeil’s plan, it still has to be debated in the Bundestag before it can be implemented. Debates are likely to happen in mid-July, before the Bundestag breaks for summer.
If the Klingbeil’s budget passes in the Bundestag (lower house), it must then be approved by the Bundesrat (upper house), which represents the German federal states. It will likely go to a vote in the Bundesrat in mid-September.
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