The federal cabinet today adopted the government draft for the 2018 federal budget and the financial plan to 2021. No new debt is envisaged for any of the years covered by the financial plan. Federal expenditure in the years up to 2021 is set to rise at a moderate pace, from €329.1bn in 2017 to a projected €356.8bn in 2021. In particular, federal spending in forward-looking, growth-enhancing policy areas will be further increased.
Commenting on the federal cabinet’s decision, Finance Minister Wolfgang Schäuble stated:
Today’s decisions are a testament to four successful years of policy-making. Budget conditions in Germany are good. In each of these years, no new debt was incurred, and we set the right fiscal priorities: on forward-looking investment, education and security. Our country is in good shape. We are taking sufficient financial precautions to keep our policy-making options open. This draft provides us with a basis to get straight to work when the next legislative term begins.
By adopting a balanced budget containing no new borrowing, the federal government is making a key contribution towards bringing Germany's debt-to-GDP ratio below 60% (as required by the Stability and Growth Pact) by 2020. It is feasible that the debt ratio will fall below 66% this year.
The adoption of the draft budget and financial plan ensures that Germany’s next federal government – which will take office following the upcoming general elections in September 2017 – will have flexibility when it comes to making decisions and designing policies.
- A budget-wide savings requirement is still planned for 2018. However, this has been reduced from an estimated €4.9bn to €3.4bn thanks to the positive projections contained in the May 2017 tax revenue estimate.
- The financial plan also contains uncommitted budget resources totalling €14.8bn for the years from 2019 to 2021. This is the amount by which projected revenue exceeds planned expenditures under current legal conditions. These extra funds are entered in the financial plan as a budget-wide revenue shortfall. How they are deployed will be decided during the next legislative period.
- Favourable budgetary outcomes over the past two years have been used to set aside €18.7bn in reserves that will make it possible for Germany to keep paying for refugee-related costs without taking on new debt. €6.7bn of these reserves are expected to be disbursed in 2017, followed by €8.2bn in 2018 and €3.8bn in 2019.
Investment spending is set to increase under the new financial plan, from €33.2bn in 2016 to €37.1bn in 2019. Over this same period, spending on education and research will climb from €20.7bn to over €23bn. More specifics on Germany’s investment plans include the following:
- Transport investment will be raised to €14.2bn in 2018, a €1.4bn increase over allocations for 2017. This is up from a total of roughly €10bn in 2014.
- The Federal Ministry of Education and Research will have a total of €17.6bn at its disposal in 2018, €340m more than the amount projected in the previous financial plan. In 2009, its budget stood at approximately €10bn.
- For the expansion of Germany’s broadband network, the federal government will allocate an extra €400m on top of the benchmark figure approved in March 2017. This means that a total of approximately €4.4bn is earmarked for this purpose in the years up to 2021. The aim here is to provide further support for underserved areas where no network expansion by private companies is expected in the next three years.
- The new financial plan also envisages a €300m top-up in microelectronics investment, for a total of €1.7bn in the years up to 2021. Here the federal government intends to facilitate the spread of digital technology in industry, thereby boosting innovation and competitiveness.
The 2018 federal budget and the financial plan to 2021 also place a clear priority on external and internal security as well as development cooperation.
- In 2018, the defence budget will increase to €38.5bn. This is €1.6bn more than the figure projected in the previous financial plan. Defence spending will keep rising in the coming years, to €42.4bn in 2021. This will continue the turnaround in both staffing and procurement for the Federal Armed Forces.
- The Federal Ministry of the Interior’s budget will rise to over €9.2bn in 2018. This represents an 11.5% increase over the projection in the previous financial plan and is up from €5.9bn in 2013. The additional funding will be targeted directly towards measures to enhance internal security. In particular, financial resources will be provided for the staffing and equipment needed to implement the packages of security policy legislation adopted in recent years.
- The budget of the Federal Ministry for Economic Cooperation and Development will grow to €8.7bn in 2018, up from €6.4bn in 2014. The ministry’s budget has expanded by 35% in four years, a trend that is reflected in Germany’s ODA/GNI ratio. This ratio stood at 0.42% at the outset of the current legislative term, but climbed to approximately 0.7% for the first time in 2016, when Germany’s ODA spending totalled roughly $24.67bn.
Germany continues to place a high priority on integrating refugees and fighting the root causes of refugee flows. The Federation has budgeted €21.4bn for refugee-related spending in 2018. This includes €6.6bn for measures to fight the root causes of refugee flows, significant financial relief of €6.8bn for Land and local governments, and €8bn in federal spending on integration measures and social transfers.
Social spending will remain at a high level in 2018 – approximately €173.8bn – and continues to account for the largest share of federal expenditure by far. In 2018, spending on social benefits is expected to make up roughly 51.5% of total expenditure. This means that approximately one out of every two euros spent by the federal government will go to social benefits. Grants to the statutory pension insurance system account for the largest share of social spending by the Federation. These will increase from just under €94bn in 2018 to €103.4bn in 2021.