Ballooning Budget Shortfall: Predicted Shortage of Around 172 Billion Euros by 2029, Despite Hefty Debts - Federal Financial Shortfall Predicted to Reach Approximately EUR 172 Billion by 2029, Despite High Levels of Debt
The German government is grappling with a projected financial gap of around €172 billion by 2029, according to Finance Minister Lars Klingbeil's ministry. This substantial shortfall is a result of several key factors.
Firstly, the government has had to make additional concessions and compensation payments, particularly in relation to a "growth booster" tax relief package designed to stimulate the economy. This package, while intended to boost growth, has led to billions in tax shortfall compensations at state and local levels, a cost that was not fully anticipated in earlier budget estimates.
Secondly, the decision to advance the introduction of the new maternity pension scheme by one year to 2027 has added an immediate cost of about €5 billion to the budget.
Thirdly, rising interest expenditures (debt service costs) are increasing the fiscal pressure on the budget.
Fourthly, the government's commitments towards economic stimulus measures and increased spending, including defense spending plans, collectively contribute to the widened budget gap beyond the previous estimate of €144 billion, moving it up to around €172 billion.
The budget shortfall is further exacerbated by three consecutive years without economic growth, putting pressure on tax revenues and increasing reliance on fiscal adjustments.
To address this challenge, the German government faces the choice of either cutting spending by around €171 billion or significantly increasing tax revenues by 2029 to close the gap. The government has planned savings targets of €34 billion in 2027, €63 billion in 2028, and €74 billion in 2029.
In the current fiscal year, the planned net credit intake is €81.8 billion. For 2026, this figure is projected to increase to €89.9 billion. By 2029, the planned debt increase will rise to €126.9 billion.
Core budget expenditures are set to rise to €572.1 billion by 2029, up from €503 billion in the current year and €520.5 billion in 2026.
The parliamentary procedure for the budget plans begins after cabinet approval and is expected to be completed by mid-December. The government aims to reduce these financial needs promptly and permanently, with the 2025 budget and the newly drafted 2026 budget marking the beginning of structural consolidation.
The government plans to save on personnel: 0.5% this year, 2% per year from 2026 to 2028, and 1.5% in 2029, excluding personnel in security authorities. The government also expects consolidation opportunities through further reducing the number of federal commissioners and savings in funding programs and administrative expenses.
The 2026 budget plan and the financial plan until 2029 will be decided by the cabinet on Wednesday. The increase in demand for funds by 2029 is estimated to be around €172 billion. The increase in demand is due to federal revenue shortfalls, caused by the recently approved growth booster, the expansion of the mother's pension, and the recalculation of interest expenses. The increase is also due to the expiry of the special fund for the Bundeswehr.
EC countries may need to reevaluate their employment policies, as the financial strain on businesses, personal-finance, and government budgets can have rippling effects on employment opportunities. For instance, the German government's anticipated budget shortfall of €172 billion by 2029 could potentially lead to job losses or reduced hiring due to necessary spending cuts or increased taxes. Furthermore, businesses, particularly those reliant on government contracts or subsidies, may face challenges in maintaining employment levels as public funds are diverted to address the financial gap.
