Household: The traffic light is already looking into the next, deep hole

After the budget is before the budget? There is a risk of even deeper holes in 2025. A mine tour before the general debate this Wednesday.

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It wasn’t easy, Christian Lindner admits that right from the start. Rarely has a household been discussed so intensively, he says in the Bundestag. Nevertheless, the finance minister is convinced: “It was worth it.”

Tuesday morning, the traffic light coalition is finally making its way into “financial reality” – says Lindner. The 2024 budget is in place, but now for real. This week the “design budget”, as Lindner calls the hard-fought concoction, is to be passed.

The only question is how long the audible relief will last.

Budget: Coming gaps are already becoming apparent

There are already significant budget gaps for the coming years. Could the 2025 budget provide actual proof of whether the oath between the SPD, Greens and FDP holds? This question is raised by traffic light MPs. There is even talk of a moment of truth.

Because once again there is a billion dollar hole that needs to be filled. And if you follow the chain of evidence, the coalition is heading for a bitter distribution battle – which could make the latest savings of 17 billion euros seem like a squabble about mess.

If everything goes according to plan, the 2025 budget draft will be ready by summer. This usually also takes into account the financial policy developments in the coming years. That doesn’t make the negotiations any easier, quite the opposite. There are many predetermined breaking points.

The Climate and Transformation Fund

The budget dispute of the past few weeks goes back – it has almost been forgotten – to three letters and a judgment. The constitutional judges in Karlsruhe have accepted an accounting trick with which the traffic light pushed 60 billion euros into the climate and transformation fund right at the beginning of its term in office. This special fund, or KTF for short, is intended to finance the country’s ecological restructuring. And it remains a problem for the 2025 budget.

Coalition budget politicians estimate the gap in the KTF for 2025 to be up to 15 billion euros. Even after the Constitutional Court ruling, the fund still has a reserve of around 30 billion euros, it has income from CO2 pricing – and yet the tasks are larger than that the available resources. Ultimately, the traffic light’s standard answer to all projects that even sounded like climate protection between the lines was: We’ll pay for it from the KTF.

Among other things, the fund supports the replacement of heating systems in private households. This is where the billions with which chip factories are to be located in Germany come from. He now covers the EEG costs for wind and solar parks. And actually the climate money that the SPD, Greens and FDP have promised the Germans should also be paid out of the KTF. Actually. It is questionable whether this compensation for rising CO2 prices will even come during this election period. What would he be paid with? Even more questionable.

The two percent target

And another question: Will the “turning point” soon come to an abrupt end? The special fund of 100 billion euros for the Bundeswehr announced by the federal government is gradually running out. More than 60 billion euros are tied up in contracts, said the head of the procurement office to the “Handelsblatt”. The money is flowing, that’s the good news.

The bad news: Defense Minister Boris Pistorius is far from having an army that is “fit for war.” And even if Germany will reach NATO’s two percent target for the first time this year, it will still require around 20 billion euros from the special fund to top up the regular defense budget (52 billion). So what happens when the money runs out?

Chancellor Scholz has promised to adhere to NATO’s goal permanently – in the 1920s and also in the 1930s. In the future, the defense budget will have to grow massively in order to cover the needs. Last summer, economic expert Hubertus Bardt from the German Economic Institute in Cologne estimated the gap for the period after the special fund at almost 40 billion euros – every year. Others believe that a sum of around 25 billion euros is necessary. Either way, it’s a lot of money.

Therefore, a second special fund for the Bundeswehr is already being discussed in Berlin in order to ensure planning security. There is currently no political initiative for this. But another extra pot, which is guaranteed in the Basic Law, would possibly be the most elegant solution, they say. In this way, the debt brake could be circumvented again.

Ukraine aid

There is a date in the traffic light calendar that many people are currently afraid of: November 5th, the day of the US presidential election. The concern is that if Donald Trump wins, all of the budget calculations would be taken care of anyway. Trump is likely to try to cut funding for Ukraine and may reduce American involvement in NATO. The federal government would then face massive investments in defense – and billions in additional aid for Kiev.

Of course, the money could be taken from the normal budget if the traffic light made drastic savings elsewhere. That would not be very likely, given the foreseeable political accusation that the costs of the Ukraine war would be passed on to the working middle class.

Before Christmas, the coalition partners agreed as a precautionary measure to suspend the debt brake in the event that the situation in Ukraine should fundamentally change. But when exactly does this agreement apply? What does fundamental mean? Would Trump really cut back on US aid in the war against Russia from one day to the next? Shouldn’t other European countries also help more to fill the gap? And would the FDP – a year before the federal election – simply give up its sacred principle like that?

Even in an emergency, the debt brake will hardly be able to be suspended at the push of a button. Everything would probably start all over again: agonizing debates at traffic lights.

Basic child security

The year had barely begun when the first traffic light dispute broke out – and of course it was about money. The FDP wants child allowances to finally increase after several increases in child benefit. Outcry from parts of red-green. It was just a first foretaste of the debates that will take place regarding the specific design of basic child welfare.

From 2025, the traffic light wants to bundle child benefit, child tax allowance and various other social benefits for children to provide basic child security. This is what the traffic light agreed in the coalition agreement and decided last autumn after endless arguments (including a budget blockade). Green Family Minister Lisa Paus promises to help 5.6 million poor children. The liberal Finance Minister Lindner has earmarked an additional 2.4 billion euros for this in the 2025 budget. Until now.

Social associations and poverty researchers complain that this will never be enough to effectively combat child poverty. But exactly how many families will ultimately receive how much money cannot be predicted precisely anyway. In the end, a lot more money could flow than previously planned.

Possible salvation: the good old timeline. Implementing such a mammoth project takes time. The responsible Federal Labor Office made it clear in the fall that payments could begin in July 2025 at the earliest, gradually. Its president, ex-SPD leader Andrea Nahles, just warned again: “The clock is ticking, and very loudly.”

For Lisa Paus it may have been a wake-up call, for Christian Lindner perhaps a signal of hope, for the traffic lights a warning foghorn: iceberg ahead.