German government coalition faces even larger budget gap in 2025 – media report

Germany's government coalition is facing yet more heated debates about how to plug a gap in the country's budget, as the deficit in next year's federal funding could be even bigger than in 2024, writes business daily Handelsblatt, based on information by government sources. Following a German constitutional court ruling which blew a 60-billion-euro hole in the country's multi-annual key climate action funding vehicle late last year, the Climate and Transformation Fund (CTF), the Social Democrats (SPD), Green Party and Free Democrats (FDP) took several weeks to agree a compromise consisting of austerity measures, a reshuffling of funds and finding new sources of income. While the exact extent of the funding gap in 2025 remains unclear, Handelsblatt writes that government sources say it will be at least 13 billion euros. The situation will likely lead to a "fierce battle" within the governing coalition over how the available budget is distributed, also because the EU and several regional elections this year are likely to reduce the parties' willingness to compromise, writes the newspaper.

The sources said the budget gap would likely be significantly larger, larger even than this year's 17-billion-euro gap, because the government coalition had agreed to fill the hole poked into the CTF by the constitutional court ruling with funds from the regular budget. Here in particular, the coalition parties are headed for fractious negotiations: "While the Greens want to continue implementing as many climate projects as possible, the finance ministry sees no need for large subsidies," writes Handelsblatt. Should a planned "climate bonus" payment (Klimageld) be introduced next year, even more CTF funds would be needed. The government intially aimed to set up an annual payment to citizens to compensate for rising CO2 prices, but the plan has faced setbacks and delays.

A ruling by Germany's highest court in November 2023 declared an integral part of the government's funding plan for climate and energy programmes unlawful, dealing a major blow to chancellor Olaf Scholz’s coalition. The court's decision threw the coalition's funding plans into disarray, causing major uncertainty among policymakers, industry and citizens waiting to implement new projects. The government has now introduced a mix of budget cuts, reshuffling, higher taxes and levies, and promised that key climate action measures will not be affected even if there was now "significantly less money to meet our goals."