Germany’s budget for 2025: A massive and rapid increase in investment, but for what purpose and at what cost?

The German government has presented its draft budget for 2025, which is expected to be adopted in September. It is a breakaway budget marked by a clear return to public investment and support for business investment, at the cost of a significant increase in debt. This budget is one of the pillars of Germany's new policy, which should have a rapid positive impact on growth.

The German government presented its budget for 2025
On Tuesday 24 June, the German government presented the main outlines of its budget for 2025 and its projections until 2029.

A bill to implement the borrowing authorisations for the EUR 500 billion special fund for infrastructure and low-carbon transition was also tabled. The text has been sent to Parliament for review and possible amendments before the summer recess, ahead of a vote scheduled for September. The budget is not expected to encounter any major obstacles. Indeed, the vote only requires a simple majority, and the CDU/CSU and its coalition partner, the SPD, constitute a majority.

The government intends to modernise the country and return to a potential growth of at least 1% as quickly as possible. To achieve this, it is banking on targeted public investment in strategic sectors, structural reforms and tax incentives to stimulate private investment (see the ‘Investitionssofortprogramm’ law adopted on 26 June 2025).

The 2025 draft budget structures the public investment strategy and organizes a ramp-up of this spending:

- Starting in 2025, Germany plans to invest around EUR 120 billion per year in public infrastructure (2.7% of 2024 reference GDP). Funding will prioritise transport (particularly rail) and housing, but also digital technology, education and the energy transition.

- A steady increase in defence spending is planned, reaching 3.5% of GDP in 2029 (an average of EUR 160 billion per year); the ramp-up will be rapid (2.4% of GDP in 2025, 3% in 2027).

- This unprecedented increase in public investment will be enabled by special dedicated funds, but also by the requirement to allocate at least 10% of the core budget to investment spending. By way of comparison, the latter accounted for only 2.7% of total federal public spending on average over the period 2000-2020.

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