For a financial policy that is fit for the future and supports effective action

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Federal Cabinet adopts 2023 federal budget For a financial policy that is fit for the future and supports effective action

Germany is returning to stable economic policy, sending out an important signal in challenging times. Robust finances and a refusal to increase new borrowing will ensure the Federal Government is capable of taking effective fiscal action. The Federal Cabinet has adopted the proposed 2023 federal budget and the financial plan for the next three years.

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Federal Finance Minister Christian Lindner at the government press conference on 16 March 2022

Federal Finance Minister Christian Lindner: “The Federal Government sees financial policy as a policy of facilitation: transformation, technology and promoting talent are the priorities in our budget."

Photo: picture alliance/dpa/Michael Kappeler

What does the 2023 federal budget look like?

The 2023 federal budget provides for revenues and expenditures of 445.2 billion euros: a reduction of 10 percent from last year. The budget is overshadowed by the uncertainties of the coronavirus pandemic and the war in Ukraine, with ongoing doubts about how it will progress. The Federal Government’s primary goal is to respond decisively to these and future challenges and at the same time to mitigate the social and economic impacts. This will require sound finances and a budget that allows the Federal Government to take decisive action.

How will new debt change?

After three challenging years with high levels of new debt, the Federal Government is returning to compliance with the credit limit enshrined in the Basic Law, not just next year but for all years up to 2026. Net borrowing will be significantly reduced in 2023 compared to the previous year, falling from almost 140 billion euros to around 17 billion euros.

The aim is to continue to reduce new borrowing over the next few years. According to the finance plan, the Federal Government only plans to borrow between 12.3 and 13.8 billion euros for the period from 2024 to 2026. “We have to lead the state back out of debt, which means returning to the debt limit in 2023,” explained Finance Minister Christian Lindner. “This sends a clear message to capital markets and central banks that we are serious about fighting inflation.”

What are the priorities of the Federal Government?

A robust financial policy and the return to the debt limit require reviewing and re-prioritising expenditure. But two points are clear:

  • Any changes must stringently avoid imposing new burdens on citizens or the economy. The current period of great uncertainty makes it particularly important to avoid new interventions that might thwart economic growth.
  • Future-oriented investments are being consolidated at a record level. By doing this, the Federal Government is laying the groundwork for the transformation of Germany’s economy into a sustainable, climate neutral and digital economy.

Now and in future the guiding principle of the Federal Government’s budgetary policy will be “consolidation through prioritisation”. The aim here is to avoid inflationary pressures and to boost lasting economic growth.

How much money is allocated for investments?

As agreed in the coalition agreement, major future-oriented investments are planned for the next few years, particularly for climate protection, mobility, digitalisation, innovation, and education and research. These investments will support the modernisation of this country and boost Germany as a business hub.

Finance Minister Lindner explained that “the Federal Government sees financial policy as a policy of facilitation: transformation, technology and promoting talent are the priorities in our budget. We want to make it possible for Germany to venture progress.”

Spending on investments in 2023 amounts to over 58 billion euros. This is primarily aimed at activating private investment by businesses and boosting forces for innovation and growth in technology.

How has the Ukraine war influenced budget planning?

Russia’s war of aggression against Ukraine has compounded the uncertainty caused by the ongoing effects of the pandemic, which has left its mark on the 2023 budget. For example, the budget provides considerable sums to support Ukraine and to mitigate the effects of the war. It also budgets for measures aimed at securing energy supplies.

The invasion of Ukraine by Russian troops is in breach of international law and has shown how important it is to protect freedom and democracy. Germany is shouldering its responsibility by making available substantial funds for defence, development cooperation, humanitarian aid and international climate protection. The special fund for the Federal Armed Forces is worth up to 100 billion euros and expands the sums allocated to defence in the federal budget for the coming years. These funds will be used to bring Federal Armed Forces equipment fully up to date.

How is the Federal Government preparing for future challenges?

The budget has allocated five billion euros for “global crisis prevention”. This will make it possible to fund additional burdens due to the pandemic or measures that are required in connection with the Ukraine war.

What happens next?

The budget and finance plan will now go to the Bundestag and Bundesrat for approval. The Bundesrat has up to six weeks to state its position on the submissions. The first reading in the Bundestag is planned for late September and adoption of the budget by the Bundestag is planned for the end of November. Following this, the Bundesrat must give its approval; this is scheduled for mid-December.