The basic rule is: the Cabinet should decide on the draft budget by mid-July; then the details on the individual departments will also be available.
The first referendum in the Bundestag is scheduled for mid-September. The budget should be decided in November or December. There may be difficult negotiations ahead.
But what exactly does the federal budget for 2025 envisage? FOCUS online translates the complex decision and tells what will change now.
This is changing for families
The immediate child benefit for needy families in the citizen's benefit will be increased by five euros next year. This amount will rise from the current 20 euros to 25 euros and will expire with the introduction of basic child welfare. In concrete terms, this means that 190,000 low-income families are already receiving additional financial support for their children.
According to the agreement, the child benefit that all parents in Germany receive per child will be increased to 255 euros per month.
There are also changes to the child benefit. As the document shows, this year it will be increased by 228 euros to 9,540 euros. Next year it will increase by another 60 euros to 9,600 euros. The benefit is deducted from taxable income and therefore has a tax-reducing effect for families.
In addition to the increase in payments to families, the federal government plans to invest two billion euros in the quality of childcare in 2025 and 2026. Funding for voluntary services should remain at the level available to sponsors until the end of 2023.
Two tax classes (III and V) are no longer applicable for married couples. Instead, there should be only one tax bracket for both spouses. The resolution says: “With the end of tax classes III and V, we make it more attractive, especially for women who work part-time, to work longer. Until now, people with higher incomes pay taxes according to tax class III.” people with low incomes according to tax class V. While high-income earners pay less tax as a result They pay taxes and thus have more net in the account, the opposite is true for low-income earners. After filing the tax return, the tax authorities usually return the money, depending on the amount of taxable income.
That changes for employees
The federal government is adjusting income tax rates, as well as the basic tax credit, the child tax credit and the “Soli” tax credit for 2025.
The input tax rate is now 14 percent and the top tax rate is 42 percent. The top rate is 45 percent. It is not clear exactly how the income tax rate will change. There should also be a tax exemption for employees' overtime.
Qualified foreign workers receive a tax discount for the first three years. This is 30 percent in the first year, 20 percent in the second year and ten percent in the third year. This is intended to make Germany more lucrative for qualified foreign workers.
In 2025 and 2026 alone, taxpayers will be freed from a total of 23 billion euros.
Does this change for beneficiaries of the citizen benefit?
The federal government has announced reforms to benefit citizens. New registration deadlines should apply to recipients of citizen benefits who are available on the labour market at short notice. They must then report to the employment agency once a month. Reasonableness standards should also be further developed.
Since 1 January, beneficiaries of citizens' benefits do not have to touch their savings during the first year of receiving benefits. This so-called waiting period will now be reduced to six months. It is not clear whether the upper limit of 40,000 euros will change.
In addition, the employment office can directly impose fines of 30 percent if the beneficiary of the citizen's benefit fails to comply with his obligations. This is intended to provide clear incentives to start working. The federal government also wants to combat illegal work more vigorously. According to information from FOCUS online, financial control of undeclared employment (FKS) in particular must be strengthened.
This could result in a zero-round scheme for citizen benefits: single people are currently entitled to 563 euros. Adults living with a partner receive 506 euros. Young people aged 15 to under 18 receive 471 euros. Children from the beginning of the seventh year to the age of 14 receive 390 euros.
That changes for pensioners
Anyone who wants to continue working as a pensioner should be rewarded for doing so.
In future, employer contributions to pension and unemployment insurance will be paid directly as wages to employees who already receive a pension. That's a lot of money. The employer's share of pension insurance is 9.3 percent and unemployment insurance is 1.3 percent. So that's 10.6 percent more net wages. With 3,500 euros (tax class 3, Bavaria), the oldest person would have 370 euros more in the account.
This amount will soon be higher: from 2028, the pension insurance contribution will rise to 20 percent. A further increase to 22.3 percent is planned from 2035. The employer pays half of each.
This is changing for the industry
Chancellor Olaf Scholz has announced billions in aid for German companies. The SPD politician said in Berlin that repayment conditions should be improved.
Investments should be able to be claimed for tax purposes more quickly. In addition, the research allowance should be increased. Low-interest loans from the state-owned development bank KfW are also planned to better promote the economy.
Vice-Chancellor and Economics Minister Robert Habeck (Greens) spoke of a new economic dynamic. Only modest economic growth is expected in Germany this year.
The federal government also wants to pass a red tape reduction law every year to reduce bureaucracy step by step. So far, four red tape reduction laws have been passed. The aim is to enable the affected departments to make adjustments in a short time.
In addition, according to Scholz, the so-called electricity price equalisation should be extended until 2030. The Chancellor spoke of billions in relief for the German economy. The government will also take measures to reduce grid costs.
What else is changing?
- According to the federal government, the abolition of the EEG tax in 2022 reduced the price of electricity by around 6.5 cents per kilowatt hour (kWh). It should remain that way. If the price of electricity remains low, the demand for heat pumps and electric cars could increase, according to the relevant resolution.
- More than 20 billion euros are earmarked for the construction of social housing by 2028. Families will also be supported with 1 billion euros for new climate-neutral buildings in the low and medium-price segments. Rent control remains in place and will be extended. The law was initially valid until the end of 2025.
- The federal government is allocating around three billion euros for research projects. Funding for the Federal Agency for Advanced Innovations (SPRIND) is to be increased; through the Pact for Research and Innovation, the federal government will make around eight billion euros available to leading scientific organisations by 2025.
- According to reports, the federal government wants to invest an additional billion euros in internal security. According to the budget plans for 2024, the Federal Ministry of the Interior and Community (BMI) has around 13.3 billion euros at its disposal. For the following year, a budget of almost 14.5 billion euros is available. It is not yet clear how exactly the money will be used. Important expenditures of the Ministry of the Interior include strengthening the federal police, civil protection and disaster protection, the Federal Office for Migration and Refugees (BAMF) and digitalisation.
- The Bundeswehr has a significantly smaller additional budget than requested. The defence budget is only expected to increase by around 1.2 billion euros from the current 52 billion euros. Defence Minister Boris Pistorius had, however, requested an increase of between 6.5 and 7 billion euros.
- Germany will exceed the NATO quota of two percent of gross domestic product (GDP) both in 2025 and in the following years up to 2028 inclusive.