BERLIN (Reuters) – Germany’s cabinet on Wednesday approved a draft 2024 budget that foresees spending cuts, with defense exceptions, as Europe’s largest economy adheres to rules limiting borrowing suspended during the coronavirus pandemic.
The government’s plan calls for spending of 445.7 billion euros (485.7 billion U.S. dollars), down about 7% from the 476.3 billion euros (519 billion U.S. dollars) it expects to spend this year.
Defense spending is set to rise by 1.7 billion euros to around 51.8 billion euros, which is somewhat less than what the defense secretary initially sought.
Germany plans to reach the NATO target of spending 2% of GDP on defense next year, a measure it has long fallen short of, with the help of a special €100 billion fund set up to modernize the German military after Russian invasion of Ukraine. Berlin aims to meet the target through its regular budget later in the decade.
“Security, economic prosperity, industrial fitness for the future, climate neutrality and cohesion are the most important characteristics of a budget which is of course challenged by the fact that many in recent years have become accustomed to the large dimensions” linked to measures to address the effects of the pandemic and the Russian war in Ukraine, Chancellor Olaf Scholz told lawmakers. .
Schulze’s three-party alliance returns this year to compliance with Germany’s so-called debt brake, which allows new borrowing at 0.35% of annual GDP.
They can be suspended to deal with natural disasters or other emergencies beyond the state’s control — and were for three years after the coronavirus pandemic began in 2020 to allow large amounts of borrowing to fund various support and stimulus packages.
Chancellor of the Exchequer Christian Lindner and the pro-business Liberal Democrats were particularly adamant that money be made available to abide by these rules, and the Coalition also agreed that they would not raise taxes.
Lindner told reporters that the government is “beginning to return to budgetary normality” and is sending “a clear signal that Germany is committed to sustainable state financing for the long term.”
The German parliament is expected to approve the final version of the budget in December.
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