Negotiations on the federal budget: The little budget doesn't work itself out

“The little bit of housekeeping can’t be that bad,” sang Johanna von Koczian with an ironic smile in the 1970s. The traffic light government made up of the SPD, Greens and FDP learned how bad the budget could be and finally collapsed exactly two years ago because of the dispute over it. The Union and the SPD have been warned, none of the three governing parties want to let things get this far. Before the crucial adjustment meeting of the Budget Committee on Thursday, the political groups were sworn to compromises that are particularly painful for the Union.

Contrary to what Chancellor Friedrich Merz announced a month ago after a meeting of the CDU executive committee, the electricity tax for private households and small companies will probably not be reduced. At the time, Merz restricted the idea that there could only be a tax cut if there was scope for it in the budget. When asked, however, he was confident that the necessary 5 billion euros would be easy to obtain from additional tax revenue. Apparently he went too far again.

The money is still missing. This is also because the coalition wants to forego new income for the time being. The introduction of the sugar tax on drinks should be postponed and the planned tax on plastic packaging should be eliminated entirely. An increase in the tax on sparkling wine, i.e. on sparkling wines, is also off the table.

A small consolation for the Union MPs. The SPD, on the other hand, has achieved that the cuts in housing benefit are largely reversed and children from poor households continue to receive 25 euros per month from the state. However, asylum seekers should no longer receive this child allowance.

The SPD parliamentary group leader, Matthias Miersch, tried not to look too satisfied when he announced the agreement in the Reichstag building shortly before midnight on Wednesday evening together with Union parliamentary group leader Thorsten Frei and CSU regional group leader Alexander Hoffmann and first thanked his Union colleagues before continuing: The SPD had promised a justice check and had achieved that the savings for families would be reversed.

Frei and Hoffmann emphasized above all the fact that an agreement had been reached. This is the third federal budget that has been passed together, praised Frei. Hoffmann admitted: “This government draft led to a lot of need for discussion in the parliamentary group.”

That's putting it mildly. While the SPD was already using its social media channels with tiles like: “Agreement with the Union: No cuts in housing benefit,” the Union MPs were still discussing. The appearance in front of the media, originally scheduled for 9 p.m., kept getting postponed. “There was a real bang there,” admitted deputy group leader Matthias Middelberg in an interview with Deutschlandfunk on Thursday morning. According to information from the Bild newspaper, more than 30 MPs are said to have spoken, including the general secretary of the North Rhine-Westphalian CDU, Paul Ziemiak. The only thing they wanted, the electricity tax reduction, is not coming. “We are losing all credibility,” Ziemiak is said to have said.

This statement was confirmed to the taz by participants. The anger of the Union MPs is said to have been directed primarily against the SPD and Finance Minister Lars Klingbeil, who allowed the Chancellor to run. But the truth is: Doubts had already arisen in the Union as to whether Merz's full-bodied announcement to reduce the electricity tax could even be implemented. In addition, the Union also wants to compensate for the cold progression, i.e. to prevent inflation-related wage increases from causing employees to slide into a higher tax bracket and thus end up with less money in their wallets. Because the progression compensation would also cost around 4 billion euros - and it is questionable whether the necessary money can be found.

The agreement is a serious defeat for the Union, but also not a triumphant victory for the SPD, the budget spokesman for the Greens, Sebastian Schäfer, told the taz. "The Union and SPD factions have prevailed above all against their own government. The tax increases and cuts planned in the government's draft will now be reversed."

Schäfer finds it “fatal” that the electricity tax cut advertised by the Chancellor won’t happen, because it would be important to relieve the burden on citizens and small and medium-sized companies. “This kind of breach of trust harms us all.”

“If you wanted, you could both compensate for the cold progression and reduce the electricity tax,” says Left Party householder Christian Görke. “The Union should be prepared to address subsidies that it has introduced itself, such as the reduced tax for the catering industry and for agricultural diesel.”

The Union has not yet completely given up hope. “We are sticking to the electricity tax cut,” said Middelberg on Deutschlandfunk, referring to the coalition committee that will meet on Tuesday next week. However, Miersch, who is a member of the committee as parliamentary group leader, is not very confident that there will be a breakthrough in the top round. “It’s all desirable, but I have to finance it solidly.” This financing does not currently exist.

Meanwhile, calls for an increase in VAT are increasingly circulating within the Union's ranks. If it increases by 1 percentage point, the state would suddenly have 16 billion euros more in its coffers; if it increased by 2 percentage points, it would already be 32 billion euros. A nice cushion for the looming budget problems in 2028. When asked about this, Union budget keeper Middelberg at least did not rule out this possibility.

“I think that’s wrong, but I firmly assume that the coalition will resort to this means,” says Green Party politician Schäfer. This would put a disproportionate burden on people with small and medium incomes - but it would not have such a strong impact on the economy because it would not affect the export industry, for example. Görke from the Left Party finds a VAT increase “devastating”. “It would primarily penalize people with low incomes and deprive the economy of purchasing power.”

First, however, the coalition must decide on the 2027 budget. The third reading in the Bundestag is scheduled for November 27th. However, the Union and SPD only had a majority of 12 votes. Whether the majority is in place will probably also depend on whether the Union can get something out of it by then.