(Bloomberg) -- German Chancellor Olaf Scholz’s cabinet approved a draft budget for next year, backing the contentious finance plan that was sealed this month after weeks of squabbling over limited funds.
The budget blueprint, which foresees net new federal borrowing of €43.8 billion ($47.8 billion), now faces a bruising passage through parliament, with some lawmakers in the ruling coalition deeply unhappy with the belt-tightening forced on them by Finance Minister Christian Lindner.
Lindner, who heads the fiscally hawkish Free Democratic Party, has insisted on restoring a strict borrowing limit — known as the debt brake — that was suspended to help deal with the pandemic and the energy crisis.
Critics of the mechanism, installed in the wake of the financial crisis, argue that as long as it’s in place Germany will be unable to deploy the hundreds of billions of euros needed to deal effectively with challenges like climate change, the transition to cleaner energy, expanding its military and an aging population.
Lindner is due to discuss his budget planning at a news conference in Berlin later on Wednesday.
Defense Minister Boris Pistorius was one minister spared the savings drive and will get enough cash to ensure Germany continues to meet NATO’s goal of spending 2% of gross domestic product on defense.
Labor Minister Hubertus Heil and Transport Minister Volker Wissing were also largely exempted from Lindner’s thrift, while Foreign Minister Annalena Baerbock was upset not to get a bigger share of the pie.
Opposition lawmakers have argued that Lindner’s numbers don’t add up.
The draft 2025 budget includes a projected financing gap of around €17 billion, which the government hopes will be closed due to stronger-than-projected growth and tax revenues and lower-than-expected outflows of earmarked funds.
Helge Braun, a member of the conservative CDU/CSU alliance, said he’s concerned about the shortfall and accused the government of low-balling spending estimates and using inflated revenue projections.
“When we get to 2025 and reality catches up with us, there is a risk that the gap will end up being even bigger,” Braun, who also chairs the lower house of parliament’s budget committee, said Wednesday in an interview with rbb24 Inforadio.
That raises the risk that “funding programs that citizens or companies were counting on are suddenly stopped or not implemented at all,” he added.
Scholz and his cabinet also backed a supplementary budget for this year, including an additional €11.3 billion in net new debt that lifts the total to €50.3 billion, as well as another package of measures to boost the economy.
Economy Minister Robert Habeck, a member of the Greens who is also the vice chancellor, has said they could add 0.5 percentage points to Germany’s rate of expansion.
The package includes steps to strengthen private and public investment and speed expansion of renewable energies, additional tax write-offs for companies and incentives for people to work longer. The government will also extend tax relief on electricity costs for manufacturers and accelerate efforts to cut red tape.
Rolf Muetzenich, head of the parliamentary caucus for Scholz’s Social Democrats, has said the option of suspending the debt brake again remains on the table, though Lindner has repeatedly ruled that out.
Once lawmakers have completed the process of scrutinizing the budget, it would be expected to win approval in both the lower house, or Bundestag, and the Bundesrat upper house, where the 16 regions are represented, by the end of the year.
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