Government finances 1 are likely to improve this year. This is largely due to the discontinuation of extensive energy crisis measures. The deficit ratio could fall below 2%, having stood at 2.5% in 2023. 2 The debt ratio, which was 63.6% at end-2023, is also expected to decrease.

The discontinuation of the majority of assistance measures will relieve the budget by just over 1% of gross domestic product (GDP) compared with the previous year. Notably, the significant energy price brakes were scrapped at the end of 2023. Government budgets are also likely to see favourable revenue developments. Although economic activity is weak, the high revenue-yielding item wages and salaries, especially, will see fairly dynamic growth. Moreover, higher contribution rates to the long-term care insurance scheme since mid-2023 as well as further increased supplementary contribution rates to the health insurance scheme will generate additional revenue. By contrast, several steeply rising sources of expenditure will weigh on the budgets, above all the Armed Forces Fund and the Climate Fund. Aside from this, spending on employee compensation and tangible goods purchases is likely to be considerably greater due to the high inflation rates of the past two years. Spending by the social security funds is also expected to rise sharply. 

The debt ratio will probably decline more slowly in 2024 than in 2023, primarily because nominal GDP is no longer rising as steeply in the ratio’s denominator. The share of EU debt that Germany will ultimately have to shoulder is not recorded in the national debt ratio. The broad debt ratio, which expands the national debt ratio to include this share of debt, would have been 1.5 percentage points higher at the end of 2023, at an estimated 65.0%. 3 As EU debt continues to rise in 2024, the broad debt ratio will decrease less than the national ratio. 

Next year, the deficit ratio is likely to decline further because the last temporary crisis measures will then also have come to an end. More specifically, the end to the exemption of inflation compensation bonuses from tax and social contributions will probably generate a noticeable amount of additional revenue. Aside from this, the deficit ratio could tend to move sideways. Including its off-budget entities, central government’s scope for deficits is still likely to be considerable in 2025. First, central government now estimates cyclical deficits to be higher. Additionally, the central government budget and the Climate Fund may develop more favourably in the current year, with the result that sizeable reserves still remain available for budgetary financing in 2025 (see the section Central government; 2024 as a whole). The debt ratio is likely to continue falling towards the 60% threshold. However, the broad debt ratio (see above) will decrease by less again because the EU is also running up new debt this year. 

Germany’s government finances are unlikely to have an excessively restrictive effect on economic developments this year or the next. In 2024, the general government deficit will decline on balance purely due to the discontinuation of the energy price brakes. This should have only a small impact on economic growth, partly because upstream gas and electricity prices in 2024 are set to be lower again than in 2023. In 2025, inflation compensation bonuses will be no longer exempt from tax and social contributions; this aside, though, the general government budget could have a neutral impact on economic growth. The concern expressed in some quarters about overly restrictive government finances therefore seems overstated. The importance of improving the underlying economic conditions for investment and employment outweighs that of a more expansionary fiscal policy. There is a broad consensus that action needs to be taken, as also confirmed by the results of a recent Bundesbank survey of enterprises regarding obstacles to domestic investment. 4  

According to projections in the context of the current stability programme, Germany will adhere to two of the key requirements of the new EU rules. 5 First, the Member States are expected to achieve a structural deficit ratio of 1½%; this should ensure a sufficient safety margin from the 3% ceiling for the unadjusted deficit ratio. For the years 2025 to 2028, the programme envisages a structural deficit ratio in the order of 1%, which means that this requirement would be achieved by a clear margin. Second, a Member State with a Maastricht debt ratio of over 60% but under 90% should reduce this by at least ½ percentage point on average per year. According to the programme, the debt ratio will fall from 64% at the end of 2024 to 62% by the end of 2028, meaning that this requirement would also be fulfilled. The updated official tax estimate deviates from revenue expectations in the programme only slightly (see Comparison with previous estimates). 

Whether or not greater consolidation is necessary in order to adhere to the other new EU requirements will probably not be clarified until autumn 2024. At that point in time, the Member States will agree on country-specific expenditure paths with the European Commission, generally for a planning period up to 2028. Aside from the two aforementioned requirements, it must be ensured that, by following these paths, the deficit and debt ratios will not be excessively high in the ten years beyond the end of the planning period. The European Commission determines whether this will be the case by using simulations based on assumptions that it negotiates bilaterally with each Member State. 

The new EU rules will take account of ageing-related additional expenditure, which is particularly significant in Germany’s case. 6 Taken in isolation, this additional spending significantly increases Germany’s deficit and debt ratios in the simulations. However, two-thirds of the additional burdens are attributable to the social security funds. They are not permitted to become indebted and will need to counterfinance the additional burdens first and foremost through higher contribution rates. This counterfinancing would also need to be factored into the simulations. With regard to the statutory pension insurance scheme, the contribution rate increases that can be expected over the next 15 years are presented transparently once a year in the pension insurance report. Central government does not produce comparable reports for the statutory health insurance scheme or the public long-term care insurance scheme.

However, central and state governments must first spell out specifically how they intend to achieve the goals of the stability programme. The programme assumes, in particular, that central government will comply with the debt brake borrowing limit throughout, based on last year’s financial plans. However, these plans are in need of fairly extensive revision (see the section Outlook for central government finances), and the Federal Government is still coordinating its new plans at present. The extent to which the state governments will have to adjust their current budgetary policies in order to achieve the state deficits set out by the stability programme is unclear (see also the section State governments).

Further discussions are taking place with regard to the debt brake. The Bundesbank deems a stability-oriented reform to be worthy of consideration. Following the Federal Constitutional Court ruling of last November, the debt brake now applies more consistently again. As long as the debt brake applies consistently, it will be well able to safeguard sound government finances even if the borrowing limit is raised moderately. In concrete terms, given a debt ratio below 60%, a higher borrowing limit can be well justified. If the national rules then guarantee that the structural general government deficit ratio stays below 1½%, this should, in most years, fulfil the new EU requirements as well (if, in individual years, the rules looked likely to be breached, central and state governments would be required to take countermeasures, as is currently the case). The Bundesbank, the German Council of Economic Experts and the Joint Economic Forecast have all made recommendations for a slightly higher borrowing limit given a lower debt ratio. 7

The additional fiscal leeway created by such a reform could be reserved for particularly important tasks. A capped golden rule, as outlined by the Bundesbank, could, for example, create targeted additional leeway for net general government investment. As an alternative to adjusting the net borrowing limit, some envisage a special fund with its own borrowing limit in Germany’s Basic Law (Grundgesetz). A special fund enshrined in the Basic Law could be designed in such a way that it expands the deficit scope in a comparable manner, meaning that it would not run counter to the basic considerations discussed above. 

Tax revenue increased by only 1½% (+ €3 billion) on the year in the first quarter of 2024. Tax cuts put a dampener on growth, particularly in the case of wage and income tax. Even excluding this effect, though, receipts would have risen only moderately, by around 2½%.

Wage tax revenue rose by 2½%, with compensation for bracket creep depressing growth by around 3½ percentage points. To provide this compensation, legislators adjusted the income tax scale for the high inflation of the previous year; only the income threshold for the top-income tax rate was not raised. Additionally, it appears that more tax and social contribution-exempt inflation compensation bonuses were paid out as wage components, which also dampened revenue growth.

Profit-related taxes increased by 4%. The key factor here was a surge in receipts from withholding tax on interest income and capital gains. This item tripled its revenue (rising by just under €4 billion). The increase is probably chiefly attributable to considerably higher interest income in view of the year-on-year rise in interest rates, particularly in the case of deposits. The structure of deposits also changed, shifting towards higher-interest-bearing securities. The first quarter usually yields particularly high withholding tax revenue: interest is frequently paid at the end of the year, and the tax payments on this interest are reflected in the January receipts. By contrast, receipts from assessed income tax and corporation tax decreased. Non-assessed taxes on earnings (chiefly income tax on dividends) likewise recorded a decline. Higher receipts in the previous year were primarily the result of one enterprise’s one-off special dividend. 

Revenue from VAT stagnated in spite of rising prices. Nominal private consumption rose only moderately, yet actual revenue developments still lagged behind. The tax rates charged on restaurant meals, which were raised back to the normal rate at the turn of the year, did not yet bolster receipts to any appreciable extent. Such changes generally do not materialise until two months later, in the form of rising VAT receipts. 

According to the updated official tax estimate, tax revenue will go up by just under 4% on the year in 2024. This is driven mainly by expected changes in the macroeconomic reference variables for taxes. On balance, legislative changes will have only a small impact (reducing revenue). Revenue from taxation of interest income is picking up substantially, supporting growth. 

Wage tax revenue will increase by 6½% due to gross wages and salaries rising significantly. The tax cut to compensate for the high level of bracket creep in the previous year will result in a revenue reduction of 4½% of the previous year’s receipts. However, this roughly corresponds to the additional revenue generated by price-related bracket creep plus real wage-related automatic income tax increases in the current year. Specifically, the tax estimate assumes that growth in revenue from wage tax will accelerate quite strongly over the remainder of the year. Employers will probably make less use of the inflation compensation bonus in the remainder of the year than they have done so far, meaning that wage growth will yield more tax revenue. Revenue growth in March was already pointing in that direction.

There will be only a slight rise in profit-related taxes as a whole. Substantial growth in withholding tax on interest income and capital gains will offset the weak development of other profit-related taxes. Income tax and corporation tax revenue will decline. Revenue developments in the first quarter point in that direction – and are also consistent with the significant fall in entrepreneurial and property income in the Federal Government’s projection. This growth is also buoyed by the fact that it was possible to accelerate write-offs in previous years: these reduced revenue back then, meaning that less can be written off now. 

Revenue from VAT will go up by 5%. Although growth in nominal private consumption is somewhat more subdued, the expiry of temporary VAT rate cuts, such as the reduced tax rates on natural gas and district heating, will have a revenue-boosting impact.

For 2025, the tax estimate projects a rise of 4½% in tax revenue overall. The nominal macroeconomic assumptions, taken in isolation, will lead to slightly lower revenue growth than this year. However, legislative changes will boost growth: decreasing write-off volumes will continue to increase revenue growth from profit-related taxes. In the case of VAT, the absence of temporary tax cuts will again lead to additional revenue. In particular, next year there will be no possibility of paying out temporary wage components tax-free – which will significantly increase receipts from wage tax (revenue increase of 10% overall). In addition, looking at wage and income tax, legislators have not yet decided on any compensation for bracket creep. A corresponding law has been announced for the autumn; as usual, it is to be based on central government’s reports on the minimum subsistence level and on inflation-induced bracket creep that will then have been published. However, the associated revenue shortfalls are likely to be significantly lower than in the previous two years, as inflation to be compensated for is lower in the current year. An increase of 1½% is still expected for real estate tax, which will then be subject to the new federal state-specific rules. However, it is not yet known how the relevant multipliers will be set. A constitutional review of the solidarity surcharge has been announced for the current year – the tax estimate projects revenue of just under €13 billion from this item. 

According to the tax estimate, revenue will rise by an average of 3½% in the years 2026 to 2028. The increases are largely driven by assumptions about nominal macroeconomic growth and fiscal drag. The usual compensation for bracket creep has not yet been offset in this period, either. In 2026, revenue will grow somewhat more strongly (+4%). The electricity tax cut for the manufacturing sector will then no longer be applicable. In 2026, accelerated write-offs from previous years will generate noticeable additional revenue for the last time.

Compared with the tax estimate from October 2023, there are considerable revenue shortfalls. This year, net shortfalls amount to €14 billion (¼% of GDP). Next year, they will rise to €22 billion (½% of GDP). In the years 2026 to 2028, they are then projected to be between ¼% and ½% of GDP. This is due mainly to less favourable macroeconomic assumptions, especially for profit-related taxes. Legislative changes adopted in the intervening period will reduce revenue moderately – these include, notably, the Growth Opportunities Act (Wachstumschancengesetz) and the temporary cut to electricity tax for the manufacturing sector. By contrast, the estimate for revenue from taxation of interest income is now up by an average of €9½ billion per year. 

However, the downward revisions compared with the latest general government projections are significantly lower. Compared with the estimates for the Stability Council, which were also included in the stability programme, there are revenue shortfalls of €4½ billion (-0.1% of GDP) for 2024 and virtually no corrections for 2025 and 2026. There is additional revenue of 0.1% of GDP for 2027 and 2028. This is because these plans were already based on the lowered macroeconomic assumptions in the Annual Economic Report. They also largely took account of tax cuts that were not yet included in the autumn tax estimate. In addition, media coverage of the tax estimate frequently mentions cumulative shortfalls over the overall estimation period from 2024 to 2028, which add up to very large amounts. However, what matter more when preparing government budgets are the annual shortfalls, where no provision has been made for them. In relation to economic output in individual years, which is what is ultimately of relevance here, the revisions compared against the stability programme are of little importance.

The central government deficit including off-budget entities in the first quarter of 2024 was considerably lower than it had been one year earlier. It fell from €52 billion to just under €14 billion. The deficit in the core budget sank substantially due to special factors, from €21 billion to just over €8½ billion. The deficit saw an even steeper decline in the off-budget entities, as the energy price brakes financed from these came to an end.

In the core budget, the deficit fell, primarily owing to special factors. Spending on a loan granted to the IMF by central government at the start of 2023 had come to an end, and overall loan issuance decreased by €7½ billion. On the revenue side, privatisation proceeds brought some additional relief. Tax revenue rose by 3%. The lion’s share of this increase was due to the fact that contribution payments to the EU, deducted from taxes, were lower. Current expenditure grew moderately, by 2%, not least on account of higher payments to other countries (particularly, it appears, aid payments to Ukraine). 

The deficit in the off-budget entities fell sharply as the Economic Stabilisation Fund for Energy Assistance (ESF‑E) was dissolved and thus no longer recorded a deficit; however, the Climate Fund and the Armed Forces Fund saw an increased deficit. A year earlier, the ESF‑E had recorded a deficit of €26 billion. The causes of this were the price brakes for gas, district heating and electricity, as well as accompanying aid for hospitals and long-term care facilities. The ESF‑E was dissolved at the end of 2023 and the aid was discontinued. Subsequent burdens, including interest, as well as relief resulting from repayments are now making themselves felt in the core budget. At the start of 2023, the other part of the Economic Stabilisation Fund (ESF) had still recorded a deficit of €1½ billion from granting aid loans. Loan repayments have now resulted in a surplus of €3 billion. Furthermore, the redemption of an inflation-indexed bond last year had brought about a deficit of €3½ billion in the precautionary fund set up for such purposes. This burden was absent this year. The Climate Fund, on the other hand, recorded a €4 billion increase in its deficit. Just under €3½ billion in subsidies for electricity generated by renewable sources, for which other funding sources had been available previously, represented a particularly significant burden. 8 Furthermore, the fund’s receipts from carbon emission allowances declined, not least due to the fact that market prices of European certificates fell sharply. In the case of the Armed Forces Fund, outflows increased, as did the deficit compared with the previous year (by €1½ billion).

Although central government does not plan to make recourse to emergency borrowing this year, it anticipates a high overall deficit of €101 billion. €52 billion of the deficit is attributable to off-budget entities: €29 billion to the Climate Fund and €20 billion to the Armed Forces Fund. 9 It is intended for the Climate Fund and, in part, the core budget to finance their deficits from reserves. The Armed Forces Fund does not fall under the debt brake. This planning will enable central government to close its budgets without new emergency borrowing for the first time since 2020.

The core budget deficit could undershoot the planned figure slightly and retain significantly more reserves. Privatisation proceeds are already higher than in the plans; however, these will have no impact within the context of the debt brake (financial transactions). In addition, lower interest expenditure (due to relatively high estimated discounts), personnel spending and operating expenditure seem possible from the current perspective. A more favourable than planned result appears to be within reach, even if the global spending cuts (to be delivered during implementation of the budget) and additional spending on, for example, the civic allowance are taken into account. Risks are affecting tax receipts, however. The new tax estimate reduced central government’s revenue expectations by €2 billion compared with the budget estimate, thereby exhausting the separate global precautionary item. Further measures, such as the planned additional transfer of VAT funds to the federal states (lump-sum refugee payment), will thus lead to shortfalls compared with planning. However, the scope for deficits opened up by the debt brake is greater than planned, due to the fact that an additional cyclical burden of €12 billion was calculated for the current year. 10 This additional scope for borrowing could be secured with a supplementary budget in order to retain more funds in reserve for 2025. 

In the case of off-budget entities, the deficit could in fact be considerably lower than planned. Once again, central government did not provide planned figures for the remainder of the ESF, for which surpluses from repaid assistance loans are expected. As in previous years, the expenditure of important off-budget entities could turn out to be lower than budgeted. The spending of the Armed Forces Fund and Climate Fund was fairly moderate in the first quarter of 2024. Even if the outflows from these funds continue to accelerate strongly, they could still considerably undershoot the amounts authorised in the economic plans. Instead, the foreseeable revenue shortfalls for the Climate Fund resulting from the auction of EU carbon emission allowances will probably be less significant. The Climate Fund could thus have substantially greater reserves at its disposal at the end of 2024 for future budget years than estimated. Following the Federal Constitutional Court ruling, central government only struck the reserve of €60 billion that was directly affected by this decision from the books. 11

The preparation of the core budget for 2025 will present challenges. Like last year, the Federal Government did not adopt any benchmark figures for expenditure in March. The debt brake limits central government’s structural net borrowing to 0.35% of GDP (2025: €15 billion). Further funds may be borrowed in order to acquire financial assets, e.g. in the context of the generational capital fund (on its own just over €12 billion) or to mitigate adverse cyclical effects (€10 billion according to the spring projection). Compared with fiscal planning from summer 2023, the fact that cyclical deficits could now be €8 billion higher and that somewhat larger reserves will probably be available (owing to developments during implementation of the 2024 budget proving more favourable than planned) will bring relief. These effects at least eliminate the previously stated need for action to comply with the debt brake, identified as requiring €5 billion in 2025 under the old fiscal plan. However, including the estimated precautionary item, the tax estimate foresees revenue shortfalls of €4 billion. 12 There will then be further revenue shortfalls stemming from changes in tax legislation, such as to offset bracket creep and continue the lump-sum refugee payment to the federal states. This is accompanied by interest payments on the energy price assistance provided by the ESF‑E and ongoing grants to the 2021 Flood Assistance Fund. The Climate Fund, too, may require grants from the core budget. In the meantime, the individual ministries have submitted consolidated estimates for expenditure to the Federal Ministry of Finance, which reportedly go far beyond the scope complying with the debt brake. Changes therefore still need to be made to these estimates.

The picture for off-budget entities is mixed: the Armed Forces Fund has extensive borrowing authorisations, while the Climate Fund’s scope for deficits is now significantly smaller following the Federal Constitutional Court’s ruling. The task of the Armed Forces Fund is to provide the German armed forces with additional equipment financed on credit. The fund is set to add to the defence expenditure in the core budget, thereby reaching NATO’s agreed 2% of GDP (currently around €85 billion). This could require around €25 billion to be drawn from the fund next year, which corresponds to one-third of the borrowing authorisation that is planned to be left over at the end of 2024. Looking at the Climate Fund, it was envisaged in the fiscal plan from summer 2023 that reserves in the amount of €28 billion would be tapped and a large global revenue increase generated in 2025. The latter appears unlikely to materialise and, based on current planning, the reserves are all but depleted following the Federal Constitutional Court’s ruling. Even if larger reserves were to be left over from 2024, the available funds would probably fall far short of the amount needed to finance the expenditure planned in summer 2023. 

In the medium term, the need to adjust central government finances will increase further still: looking ahead, defence expenditure will have to go back to being fully financed in the core budget, emergency borrowing will have to be repaid and mounting demographic burdens will have to be shouldered. Compared with the previous medium-term fiscal plan, tax revenue losses and, not least, higher personnel expenditure appear to be on the cards. The latter had been expected to see hardly any growth from 2025 onwards, and further wage adjustments are imminent. In addition, very large global spending cuts had already been budgeted for 2027, the final year of the planning period at that time (at €27 billion, just over 5½% of expenditure, compared with just over 2% in the target for 2024). Starting in 2028, the new final year of the fiscal planning period, emergency borrowing is set to be repaid in the amount of just over €9 billion annually under the current repayment schedule. 13 This will reduce the scope for structural net borrowing. Furthermore, EU debt is scheduled for repayment starting in 2028, with repayments likely being financed by means of larger transfers from Member States. Central government grants to the pension insurance scheme will also rise significantly. They are linked to higher pension contribution rates in response to demographic changes, as well as average wages. With the planned extension of the minimum threshold for the replacement rate beyond 2025, the related financial pressure on central government will increase further. In addition, it is expected that the Armed Forces Fund’s borrowing authorisations will have been used up in 2028. 14 It will then be necessary to finance the envisaged defence expenditure out of the core budget again, subject to debt brake rules. 

State government core budgets closed the first quarter with a deficit of €3 billion. 15 One-off effects obscure a moderate fundamental deterioration on the previous year’s figure. Overall, receipts went up by 9%, roughly as much as state government tax revenue. However, the sharp rise in taxes stems from the fact that tax revenue in the same quarter of the previous year was understated due to the lagged recording of budget entries. 16 Expenditure increased by 8½%. This was due, not least, to personnel expenditure, which appears to have picked up sharply as a result of inflation compensation bonuses, in particular. Once again, the quarterly growth rates are distorted by the fact that North Rhine-Westphalia has booked its annual grants to universities (€4 billion) in different quarters (currently in the first quarter, but last year in the second quarter). However, this is unlikely to fully offset the aforementioned positive one-off effect on recorded tax revenue.

State government core budgets and off-budget entities could close the current year with a deficit, following a roughly balanced outturn in the previous year. According to the new tax estimate, state government tax revenue will go up by 3%. However, personnel expenditure, in particular – a major component of state government spending – is likely to see significantly stronger growth. Besides higher wages, this probably reflects further increases in staffing. 

Pursuant to the Federal Constitutional Court ruling of November 2023, it is not permissible to form reserves from emergency borrowing. In individual federal states, constitutional courts have been reviewing the recourse made to emergency borrowing in recent years. According to rough calculations made by the Bundesbank, in recent years many federal states have used emergency borrowing to form reserves to finance expenditure in later years. 17

Following the ruling of the Federal Constitutional Court, some federal states have adjusted their budget plans for 2024; some have declared another state of emergency this year in order to justify additional borrowing. Brandenburg, Bremen, Schleswig-Holstein, Saxony-Anhalt and Saarland once again declared a state of emergency in order to enact authorisations for new emergency borrowing. They cited at least one of the following reasons to justify the need for this: the aftermath of the pandemic, the consequences of the Russian war of aggression against Ukraine and, in Schleswig-Holstein’s case, flood damage. 

The greater a federal state’s reliance on emergency borrowing, the larger the burden on its future budgets due to repayment obligations. It is not evident that there are states of emergency in certain federal states while this is not the case for central government or the majority of federal states. Overall, there is much to be said for putting strict requirements in place if recourse is to be made to emergency borrowing. 18 Otherwise, the debt brake risks becoming ineffective. The fact that Berlin is now refraining from financing a transformation fund using emergency borrowing is thus a welcome development. Saarland, which is already particularly heavily indebted, is still intending to finance its transformation fund using emergency borrowing. Saarland’s state parliament is now required to check for each budget year whether a state of emergency exists and to approve the funds needed to combat it. However, the arrangements give the state government scope to already justify in advance large expenditure obligations for later years. Bremen refers to a whole range of necessary crisis-combating measures in its plans for emergency borrowing. 19 However, these also include building renovations and grants for hospitals that were receiving assistance even before the crisis. North Rhine-Westphalia formally plans to repay its emergency borrowing this year. Reserves from special funds, which themselves comprise emergency borrowing, are to be used for this purpose. At the same time, reserves will still be used to cover interest burdens. This approach effectively defers back the repayment burdens. North Rhine-Westphalia is also collecting a portion of its “self-management funds” to finance its current budget. Such funds were booked in previous years as expenditure for a specific purpose, but they have not yet been disbursed. The bulk of the €8½ billion in self-management funds 20 was probably built up in years in which the state made recourse to emergency borrowing. This means that, from an economic perspective, they are similar to reserves formed from emergency borrowing. 

Looking at the statutory pension insurance scheme, the marked increase in the number of pensions paid contributed to a moderately larger deficit in the first quarter. This now stood at €1½ billion. Rising by 5½%, revenue went up sharply. Sizeable social contribution-exempt inflation compensation bonuses continued to be paid as wage components. Revenue could thus grow somewhat more strongly as the year goes on if remuneration components subject to contributions increasingly replace inflation compensation bonuses. At 6%, however, expenditure went up even more sharply: in addition to the pension increase of just over 4½% in effect from mid-2023, this was due to a marked rise in the number of pensions paid. This number grew at a fairly moderate pace for an extended period of time, but it appears that it is now gaining momentum as more and more of the baby boomer generation reaches retirement age. 21

The pension insurance scheme’s finances are expected to deteriorate somewhat for 2024 as a whole. On balance, however, the pension insurance scheme could still generate a small surplus. In its pension insurance report of autumn 2023, the Federal Government expected a surplus of €1½ billion, which was similar to that of 2023. Rising by 4½%, however, pensions will increase by around 1 percentage point more at mid-year than anticipated at that time. It does appear, though, that an accelerated increase in the number of pensions paid had already been expected in the report. In addition, central government is cutting its grants by another €½ billion for the purpose of fiscal consolidation. However, a slightly stronger wage increase could counteract this somewhat.

The Federal Government wants to extend the minimum threshold for the replacement rate up to 2039 and build up a credit-financed capital stock (generational capital fund). The components of the pension reform have been known for some time. 22 The minimum threshold will see pension expenditure increase significantly more than it would under the current legal framework: according to presented plans, the contribution rate will rise by just under 1½ percentage points more than previously planned by 2040 (to almost 22½%). As central government funds are largely tied to this, the reform will also put a greater strain on the central government budget. Starting in 2035, a debt-financed generational capital fund is to be introduced to ease the burden on pension finances. According to the plans, however, it will be able to offset only a small part of the additional pressure on contributions.

The Federal Employment Agency posted a deficit of €1 billion in the first quarter of 2024. In the first quarter of 2023, its outturn was still broadly balanced. This deterioration was due to a sharp increase in expenditure, amongst other things on unemployment benefits (+17%) and active labour market policy (+12%). Administrative expenditure also shot up: the Federal Employment Agency raised transfers to the civil servants’ pension fund sharply. 23 At just over 4½%, Federal Employment Agency revenue grew significantly, but to a much lesser extent than expenditure (+€13 billion).

The Federal Employment Agency is likely to run a surplus for the year as a whole. However, this will probably be somewhat smaller than in the previous year (2023: €3 billion). The plans envisage revenue growth of 5½%. As things currently stand, this still seems plausible. However, expenditure is set to see an even sharper rise than revenue: the labour market situation is likely to remain somewhat gloomy. Furthermore, the Federal Employment Agency plans to transfer roughly €½ billion more to the civil servants’ pension fund.

Deutsche Bundesbank (2024a), 2.2 The Maastricht debt of the EU institutions and its fiscal implications for Germany, Monthly Report, April 2024.

Deutsche Bundesbank (2024b), Domestic investment barriers faced by German enterprises, Monthly Report, May 2024. 

Deutsche Bundesbank (2024c), Public finances, Monthly Report, February 2024, pp. 57-82.

Deutsche Bundesbank (2023a), State government finances in 2022: high surplus overall, some states still making extensive recourse to emergency borrowing, Monthly Report, October 2023, pp. 39-63.

Deutsche Bundesbank (2023b), Public finances, Monthly Report, November 2023, pp. 61-85.

Deutsche Bundesbank (2023c), The plan to introduce a generational capital fund to ease pressures on the pension scheme’s finances, Public finances, Monthly Report, November 2023, pp. 79-81.

Deutsche Bundesbank (2022), Central government’s debt brake: options for stability-oriented further development, Monthly Report, April 2022, pp. 49-66.

European Commission (2024), The 2024 Ageing Report, Economic and Budgetary Projections for the EU Member States (2022-2070), Institutional Paper 279, May 2024, https://economy-finance.ec.europa.eu

Federal Ministry of Defence (2024), 18. Bericht des Bundesministeriums der Verteidigung zu Rüstungsangelegenheiten, Teil 1, www.bmvg.de

Federal Ministry of Finance (2024a), Bundesfinanzminister Christian Lindner im Interview mit dem Handelsblatt, Öffentliche Finanzen, Reden, Interviews und Namensartikel, April 2024. 

Federal Ministry of Finance (2024b), Aktuelle Wirtschafts- und Finanzlage, Monatsbericht, April 2024, pp. 47-80.

German Council of Economic Experts (2024), The Debt Brake after the Federal Constitutional Court Judgement: Increase Flexibility – Maintain Stability, Policy Brief No 1/2024, January 2024, https://www.sachverstaendigenrat-wirtschaft.de

Independent Advisory Board to the Stability Council (2024), 21. Stellungnahme zur Einhaltung der Obergrenze für das strukturelle gesamtstaatliche Finanzierungsdefizit nach § 51 Absatz 2 HGrG, May 2024, https://www.stabilitaetsrat.de

Joint Economic Forecast (2024), Deutsche Wirtschaft kränkelt – Reform der Schuldenbremse kein Allheilmittel, #1-2024, March 2024, https://gemeinschaftsdiagnose.de

Ministry of Finance of the State of North Rhine-Westphalia (2023), Vorlage an den Haushalts- und Finanzausschuss des Landtags Nordrhein-Westfalen, Vorlage 18/1669, September 2023, https://opal.landtag.nrw.de

Senatspressestelle Bremen (2024), Senat stellt fortdauernde Notlage fest und beziffert krisenbedingte Mehrbedarfe, Pressemitteilung, April 2024, https://www.senatspressestelle.bremen.de