Germany may face an era of fiscal restraint.
In the face of a projected budget deficit exceeding €170 billion by 2029, the German government is bracing for significant austerity measures [1][2][3]. The deficit, driven by increased spending on defense, climate action, and social welfare, including unemployment benefits, health insurance, and pensions, has prompted leading politicians to signal the need for cuts across various sectors.
One of the areas under scrutiny is unemployment benefits, with the controversial Bürgergeld (citizen’s stipend) program expected to cost around €43 billion in 2025 [3]. Other social welfare schemes, such as health insurance and care subsidies, are also under review, particularly after Germany increased spending on these areas by 14.8% in 2024, totalling €20.2 billion [3].
Basic income support for pensioners is another major social expenditure that the government aims to restrain [3]. In fact, pension costs are expected to increase in Germany's future due to an aging population [4]. Chancellor Friedrich Merz, a supporter of reducing health insurance expenditures, has expressed his support for austerity measures in this area [1].
Politicians, particularly from the ruling coalition led by Chancellor Merz and SPD Finance Minister Lars Klingbeil, have emphasized the need for "strict consolidation" across all ministries [1][2]. This will likely affect social welfare benefits, education, and healthcare funding, as the government prioritizes military rearmament and fulfilling NATO commitments [1][2]. Tax hikes are also being discussed to help manage the deficit [3].
However, not all politicians are in favour of these measures. Dirk Wiese, SPD parliamentary group leader, criticizes a simplistic approach to solving problems by only cutting benefits for citizens [5]. Veronika Grimm, a member of Germany's Council of Economic Experts, has warned that the government's budget plans are not sustainable [6]. She has also stated that the state-funded pension system and long-term care benefits for the elderly will likely need to be scaled back in the future [6].
Research suggests that austerity measures could boost votes for far-right and far-left parties [7]. To avoid this, the CDU/CSU leaders are trying to strike a balance between necessary cuts and maintaining public support [8]. Proposals to trim back budgets, such as scrapping citizen's allowance benefits for all Ukrainian refugees or withdrawing benefits from recipients who do not accept work offers, have been suggested [9].
On the positive side, the Federal Cabinet has launched a pension law to ensure stable pension levels until 2031 and expand pensions for millions of mothers [10]. Pension contributions for workers and employers are set to rise slightly in 2027 [11]. However, concerns about the impact of austerity measures on the poorest segments of the population persist [12].
As Germany navigates these challenging financial waters, it remains to be seen how the government will balance the need for austerity with the protection of its most vulnerable citizens.
- The German government, in an attempt to reduce its projected budget deficit, is considering austerity measures not only in unemployment benefits but also in social welfare schemes such as health insurance and care subsidies, basic income support for pensioners, and education and healthcare funding, as politicians emphasize the need for "strict consolidation" across all ministries.
- As German politicians debate austerity measures to tackle the budget deficit, concerns about the impact on the poorest segments of the population persist, with some officials suggesting potential cuts to benefits for Ukrainian refugees and recipients who do not accept work offers, while others express the need to protect these vulnerable citizens.
