Today, the German cabinet adopted the second government draft of the 2025 federal budget, a draft budget support act, benchmark figures for 2026–2029, and a draft act establishing the Special Fund for Infrastructure and Climate Neutrality. Thus, 49 days after taking office, the government is laying the fiscal foundations for the coming years.

German Finance Minister and Vice-Chancellor Lars Klingbeil stated:
“With the 2025 federal budget and the €500 billion investment package, we are taking the necessary steps towards building new economic momentum, modernising and future-proofing our country, and ensuring that we can continue to live safely in Germany in the future.

This year, we are planning to invest a record amount of more than €115 billion. By 2029, annual federal investment will rise to nearly €120 billion. This will kick-start the modernisation drive our country so urgently needs – for good schools, childcare facilities and hospitals; for modern railways, bridges and roads; for climate action and digital technologies. We will also make large-scale investments in internal and external security. After all, Russia’s aggression poses a real threat to peace in Europe. We need strong deterrence and defence capabilities.

We will enact far-reaching structural reforms to ensure that our investments take effect quickly and our economy starts growing again. This includes faster approval procedures, more skilled workers, lower energy prices and less red tape. We will also ease the burden of high energy prices on consumers and businesses.

At the same time, ongoing budget consolidation remains an important priority. We are presenting a fully costed, sound budget for 2025. I have denied about €47 billion in additional requests for funds from the federal budget and the special fund. We will implement the significant savings we have agreed on. However, nothing could be more expensive than continued stagnation. That’s why we need to spend money now, which also means taking on more debt. If we succeed in boosting the economy and creating growth, government revenues will increase again.”

With its new budget and investment package, the German government is setting clear fiscal policy priorities:

• Investments to boost growth, safeguard jobs, modernise the country, and enhance internal and external security
• Structural reforms to increase competitiveness and ease the burden on individuals and businesses
• Ongoing budget consolidation

The following table shows the key figures contained in the second government draft of the 2025 federal budget and the benchmark figures to 2029:

1. Investments

The German government has put forward a comprehensive investment programme in the form of the Special Fund for Infrastructure and Climate Neutrality.

Record investments of more than €115 billion have been earmarked for 2025 (across the core budget, the Special Fund for Infrastructure and Climate Neutrality, and the Climate and Transformation Fund). Investment priorities include mobility, digitalisation, innovation, education, research and climate action.

As a result, government investment will increase by 55% compared with 2024. Of this total, approximately €62.7 billion will come from the core budget, about €25.7 billion from the Climate and Transformation Fund and €27.2 billion from the new special fund. The government plans to continue with this approach in the coming years: federal investment will increase to nearly €120 billion per year by 2029.

An investment ratio of more than 10% will be maintained in the core budget throughout the entire fiscal planning period. In this way, the German government is making additional investments, as agreed in the German Bundestag. Regular reports will ensure transparency with regard to the outflow and effectiveness of investments.

Rail

This year, about €22 billion will be made available for investments in rail infrastructure, with just over €9 billion coming from the Special Fund for Infrastructure and Climate Neutrality. The focus is on modernising the existing rail network and expanding the use of digital technologies in the rail sector. Over the fiscal planning period to 2029, government funding for rail infrastructure will far exceed €100 billion. In addition, increasing amounts of financial assistance, starting at €2 billion per year, will be allocated to the Länder under the Community Transport Financing Act (Gemeindeverkehrsfinanzierungsgesetz) for rail infrastructure projects in the area of local public transport, and grants will also be provided to Deutsche Bahn for local public transport projects.

Education and childcare

To enhance the quality of education and childcare on a long-term basis and provide planning certainty in this area, the government has allocated a total of €6.5 billion for investments in childcare and digital education from the special fund.

Construction and housing

The German government wants to increase construction activity, while also enhancing efficiency and reducing costs in this area. To this end, more than €4 billion per year will be made available for social housing and urban development starting in 2025. This will come directly from the core budget. A total of more than €20 billion has been earmarked for this purpose between now and 2029.

In addition, approximately €327 million from the special fund will be allocated for housing construction projects in 2025 alone. The special fund will provide a total of €11.25 billion of additional financial support in the area of construction.

Digitalisation

The German government is also taking decisive action to promote digital technologies. At least €4 billion will be invested for this purpose from the special fund every year. This amount is set to increase sharply over the planning period, with a focus on areas such as broadband expansion and the digitalisation of the public administration.

Climate and Transformation Fund

The Climate and Transformation Fund is the most important tool for Germany to achieve climate neutrality by 2045. It will be bolstered with additional resources from the Special Fund for Infrastructure and Climate Neutrality, receiving a total of €100 billion by means of an annual allocation of €10 billion from the special fund. In addition, a previously planned €20 billion allocation from the Climate and Transformation Fund to the core budget over the fiscal planning period has now been cancelled.

The Climate and Transformation Fund’s funding priorities include the conversion of buildings to make them more efficient and climate-friendly, ramping up the hydrogen economy, climate-friendly mobility and the transformation of industry.

Internal and external security

Another focus is expenditure on internal and external security. The global political situation has changed dramatically in recent years, including in Europe. The largest and most direct threat comes from Russia. Russia is in the fourth year of its brutal war of aggression against Ukraine, in violation of international law, and it is rearming on a massive scale. Germany continues to stand by Ukraine as a reliable partner. Support for Ukraine remains at a high level in 2025, at €8.3 billion.

The German government is investing in security and defence, to ensure that Germany has adequate deterrence and defence capabilities. The amount earmarked for defence in the federal budget has increased this year to around €62.4 billion. Together with the expenditure from the special fund for the Bundeswehr and other federal expenditure, this already results in defence spending of 2.4% of GDP for 2025 (under the NATO definition). Defence spending will be gradually increased, and a NATO defence spending ratio of 3.5% of GDP will be achieved by 2029.

In terms of internal security, the second government draft of the federal budget makes available around €1.4 billion for civil protection.

2. Structural reforms

To ensure that the planned investments have a swift impact and the economy quickly gets back on track towards growth, important structural reforms are also being initiated. These measures will accelerate approval procedures, increase the number of skilled workers, cut red tape and lower energy prices.

The German government has also launched a growth booster, which will create incentives for greater private investment and increase the competitiveness of the German economy.

In addition, the German government will ease the burden of energy prices on consumers and companies. This includes three measures that will take effect as of 1 January 2026:

• Consumers will no longer have to pay the gas storage surcharge.
• The reduction in electricity duty for industry, agriculture and forestry will be made permanent.
• The Federation will bear a significantly larger portion of the costs of expanding the electricity grid. These investments will serve the goals of energy security and climate action. In the future, the costs of financing these goals will be passed on to consumers to a much lower degree.

3. Consolidation

At the same time, ongoing budget consolidation remains an important priority. The federal government is implementing the consolidation measures that were set out in the coalition agreement. These include, for example, personnel savings of 8% between 2025 and 2029 and the reduction of administrative expenses. Finally, the federal government will increase government revenues and also step up the fight against undeclared work, tax fraud and other types of financial crime. Relevant legislative proposals will already be submitted before the summer break.

Net borrowing in the core budget will total €81.8 billion in 2025. This new borrowing is appropriate and necessary in order to invest in improving our country’s economic conditions. New growth will cause government revenues to rise again. Germany has the necessary fiscal space to make this happen. Germany’s current debt ratio of 63% is significantly lower than the debt ratios of other G7 countries.