Questions and answers
Fresh impetus to make Germany fit for the future: this is the goal of the 2025 draft budget and the growth initiative. What are the thematic priorities? How are citizens going to benefit? See below for the answers to these and other important questions.
Graphic: Federal Government
Security, cohesion, growth: these are the Federal Government’s three top priorities. The 2025 draft budget and growth initiative are designed to ensure that Germany will be a secure and economically strong country also in the future. The Federal Cabinet adopted both drafts, along with the more detailed financial plan and 2024 supplementary budget.
Investment will be at unprecedented levels, for example in areas of railway infrastructure, roads and public transport. Planning also provides for a total of 23 billion euros worth of financial relief for citizens over the next two years. The debt limit will still apply, however. The growth initiative is a package of 49 concrete measures in areas including the reduction of bureaucracy, improving incentives for workers and increasing the number of skilled workers. The goal is to considerably boost economic growth in Germany in the long term.
The most important facts about the 2025 draft budget:
What are the thematic priorities of the 2025 budget?
With its 2025 draft budget the Federal Government is providing vital impetus to boost security and stability in turbulent times. The thematic priorities are as follows: greater internal and external security, societal cohesion, tax relief for citizens and businesses, ambitious climate action and greater economic growth.
One key aspect with regard to cohesion is a reliable pension level for those who have paid in regular pension contributions. Provision of sufficient affordable housing is also important. To this end the Federal Government has earmarked a record level of funding for social housing of 3.5 billion euros to be made available in 2025, and more than 20 billion euros up to 2028. A new funding programme for housing construction is to be drawn up for this purpose.
The Federal Government’s growth initiative seeks to provide additional economic impetus while improving Germany’s competitiveness and future viability.
How high is the budget?
The federal budget for 2025 provides for a total income and expenditure of around 481 billion euros; around eight billion less than in 2024.
The Federal Government also passed a supplementary budget for the current year. In order to cover increased requirements (e.g. for relief for electricity bills), the Federal Government is going to take out additional loans worth eleven billion euros. The total volume of the 2024 budget is now just under 489 billion euros.
How does the Federal Government plan to invest?
The federal government will be investing in areas that are particularly relevant to citizens and the economy: railway infrastructure, roads, public transport, digital infrastructure and education.
In addition, the expansion of renewables is to be accelerated. To enable this, investment expenditure is to be increased further to a record level of just under 53 billion euros this year and 57 billion euros in 2025 (not including financial transactions). On top of this there is spending from the climate and transformation fund and grants for electricity pricing relief (EEG levy) of around 40 billion euros. A total of around 100 billion euros is available for investment expenditure. Clearly, this budget is not an “austerity budget”.
The most important facts about the growth initiative:
What is the purpose of the Federal Government’s growth initiative?
With its growth initiative, the Federal Government aims to provide additional impetus for the German economy. The 49 measures in different areas are designed to sustainably strengthen Germany as a business hub and its competitiveness, in order to sustainably safeguard our prosperity by ensuring good jobs and successful decarbonisation.
In order to substantially increase the growth potential of our economy, the Federal Government aims to provide incentives for companies to increase investment in new facilities and production. The aim is to strengthen the supply of capital, remove red tape and increase the number of skilled workers.
How will this package support the economy?
The Federal Government is going to encourage private investment with a range of measures, in particular in the strong areas of research and development. The reason for this is that considerable investment is necessary for tackling major challenges in the fields of digitalisation and the transition to climate neutrality. This is essential for Germany to stay a competitive, highly innovative global leader in the future, too. Despite the fact that the federal budget provides for a record level of investment, the lion’s share of investment will have to be shouldered by the private sector.
By encouraging private investment, the Federal Government’s aims include:
- Further improving depreciation of capital goods (so-called degressive depreciation).
- Increasing research subsidies in order to encourage research and development – in small and medium-sized companies especially.
- Providing more subsidised loans via Germany’s investment and development bank KfW to ensure more effective economic development.
- Strengthening Germany as a financial centre, since an efficient financial market forms the basis of a competitive economy. One of the aims here is to improve financing opportunities for young, dynamic companies.
Are citizens going to benefit from the growth initiative, too?
The growth initiative comprises a range of measures to increase the disposable income of citizens and strengthen the domestic economy as a result, while at the same time preventing bracket creep in 2025 and 2026. To this end, the Federal Government is adjusting the so-called tariff benchmarks. This and other tax-related measures will provide 23 billion worth of relief for citizens in 2025 and 2026 alone.
The effects of the growth initiative’s measures are directly tangible in other ways, too: greater flexibility is to be enabled for employees who wish to work more and for older people who would like to keep working beyond the standard retirement age, and additional work is to be incentivised. More is to be done to reduce bureaucracy, and citizens will benefit from this directly through simpler and quicker procedures, greater digitalisation and more time for the things that truly matter.