Federal budget 2025: investment booster or impending bottlenecks?

Federal budget 2025: investment booster or impending bottlenecks?

The federal government today presented the 2025 federal budget, which provides for a significant increase in investments. Finance Minister Lars Klingbeil explained that this was necessary to increase the potential growth of the economy, which has shown persistent weakness in recent years. According to the analysis by Dr. Florian Schuster-Johnson and Philippa Sigl-Glöckner are planning an investment volume of 116 billion euros and defense spending of 62 billion euros for the current year. This is part of a comprehensive fiscal package that enables higher spending on defense, infrastructure and climate protection. These measures are urgently needed because from 2027 onwards spending in areas not covered by special rules is expected to fall, which is dictated by the fiscal framework. The 2025 budget therefore shows a clear direction towards more investment, although the planning up to 2029 also forecasts gaps that will be 22 billion euros in 2027, 56 billion euros in 2028 and 66 billion euros in 2029.

The federal government has also emphasized that interest expenses could fall by around 5 billion euros from 2025. Nevertheless, an increase in interest expenses is expected due to increased federal debt. Maneuvering mass in the household is currently around 24 percent, with the possibility of falling to less than 5 percent by 2035. At the same time, an increasing need for social transfers, such as electricity price subsidies, is forecast.

Need for reform and strategies

Given the preferred spending plan, the analysis emphasized the need for fundamental budget reform. This reform should be aimed at economic growth in order to reduce the need for subsidies and cover interest costs. One proposal calls for the establishment of a “Commission for Growth and Sustainable Public Finances”, in which key ministries such as the Ministry of Finance, the Ministry of Labor and the Ministry of Economic Affairs would be involved.

In order to strengthen the structures of the German economy, comprehensive structural reforms are necessary. These include, among other things, shorter approval procedures and access to more skilled workers. A reduction in energy prices, coupled with a reduction in bureaucracy, could also contribute to strengthening Germany as a business location. An immediate investment program with targeted investment incentives is intended to support the modernization of the country. The planned measures include a depreciation booster of 30 percent per year for equipment investments and a gradual reduction in corporate tax by one percent annually, starting in 2028, down to 10 percent.

The government aims to reduce the overall tax burden for companies to just under 25 percent from 2032, which should increase planning and investment security for companies. This is particularly important to ensure the security of well-paid jobs in Germany.