Germany is enjoying record employment and high levels of domestic demand. The economy is still doing well, although the recent slowdown has resulted in tax revenue rising at a slower rate than in recent years. Clear priorities need to be set to manage the situation, and this is reflected in the government’s newly adopted draft budget and financial plan to 2023.

Improving social cohesion and increasing disposable incomes

The German government will take further steps to significantly increase disposable incomes, especially for families and low to medium earners.

There are plans for a renewed increase in child benefit and child allowance in 2021. In addition to this, the Länder and local authorities will be allocated funds from the federal budget to help make pre-school childcare more affordable and provide a better range of childcare options. These measures will be of particular benefit to low and medium-income families. 2021 will see the solidarity surcharge abolished for 90% of those who currently pay it. This alone will increase disposable incomes of low and medium earners by more than €10 billion per year. In total, the government’s decisions in this area will total more than €25 billion per year from 2021 onwards, making them the biggest tax cuts in over ten years.

Key benchmark figures for the government’s 2020 draft budget and the financial plan to 2023
20192020202120222023
Target
- in €bn -

Expenditure

356.4

359.9

366.2

372.4

375.7

Year-on-year
change (%)

+2.4

+1.0

+1.8

+1.7

+0.9

Revenue

356.4

359.9

366.2

372.4

375.7

of which tax revenue

325.5

327.0

334.2

345.5

356.1

Net borrowing

-

-

-

-

-

Investment*

38.9

39.8

39.8

39.8

39.8

*No “unbundling” funds after 2019 (federal allocations to the Länder following the discontinuation of co-funding programmes in the areas of university construction, education, local transport and subsidised housing)

With targeted investment incentives and support from the Länder in the field of social housing, the German government is going to ensure that much needed housing is constructed and that housing becomes more affordable again, even in metropolitan areas. Baukindergeld, a new home ownership-related child benefit, will provide financial assistance to families looking to buy property. Funding for housing benefit will be increased by €550 million over the course of the financial planning period.

High investment in education will ensure that Germany remains innovative and prepared for the future, and that everyone has the chance to get a good education. Over €100 billion of the federal budget will be set aside for education and research over the next four years. A number of steps will also be taken to improve equal opportunities in education, including an expansion of the BAföG student financial aid scheme.

By promoting a socially equitable labour market, the German government will help the long-term unemployed rejoin the workforce. The Federation will also provide significant support to assist with structural change in the regions affected by the coal phase-out. An extra €500 million per year will be dedicated to structural policy measures of the various line ministries. Between now and 2023 alone, a total of €2.5 billion will be provided for this purpose.

Internal security, too, will be receiving unprecedented levels of funding from the German government. The state will be hiring significantly more staff in this area, including at the police and at customs’ special monitoring unit for undeclared work.

Record investments to make Germany a modern, climate-friendly country

The government is making record investments to ensure that Germany is prepared for the future, boosts its innovative capacity and continues its modernisation. Just under €40 billion will be provided for investments every year up to 2023. This will bring total investment between 2020 and 2023 to more than €159 billion – around 30% more than in the previous legislative period. In particular, the government will be focusing its investments on the fields of efficient infrastructure, affordable housing, better education and innovative research. In doing so, it will lay the foundations for a modern Germany that is ready to face the future. 

The German government wants to play an active role in shaping the future of digital technology. It will put €5 billion towards helping schools go digital. In total, more than €3 billion is to be invested at the general government level in artificial intelligence. In addition to this, the planned tax incentives to promote research and development will strengthen Germany’s innovative capacity. All of these measures are already underway.

The government will step up climate action in order to reduce emissions of greenhouse gases in line with international commitments. The climate cabinet is currently drawing up a programme of measures to be implemented between now and 2030 in order to follow through on the Climate Action Plan 2050. This programme will be included in the Energy and Climate Fund’s planning, which has yet to be published.

Fulfilling international responsibilities

Germany takes its international responsibilities very seriously. As such, the German government will be increasing its expenditure on official development assistance (ODA) by a significant sum of €5 billion in the 2020–2023 period. Germany is thus set to remain the world’s second-largest donor of ODA. In addition to this, the government is continuing with the turnaround it has initiated on defence spending. A sum of €45 billion is set aside for the defence budget in 2020 – an increase of €6 billion over 2018.

Setting priorities without incurring new debt

Under this financial plan, the Federation will be taking out no new debt between 2019 and 2023. The government is thus making a decisive contribution to ensuring that the level of general government debt falls below the Maastricht threshold of 60% of GDP this year, for the first time in 17 years. This leaves Germany well prepared to handle any future challenges that come its way.