German Federal Budget 2024: More Money for Defense, Education and Science, as Well as for Digital and Transport

More Money for Three Ministries with High Investment Needs

Against the backdrop of the government’s budget constraint arising from adhering to the debt brake and making new investments at the same time, the question arises as to where savings should be made in the future. For this reason, the economists were asked which ministries should have more money available in the future and which ministries should receive a cut in the future.

Overall, the majority of participants favor an increase in budgetary resources for three ministries in 2024 compared to 2023. These ministries are responsible for those issues where a particularly great need for action on public investment was previously indicated. Of the economists surveyed, 59% favor an increase in funding for the Federal Ministry of Defence. This is followed by the Federal Ministry of Education and Research (54%) and the Federal Ministry for Digital and Transport (51%). For the other ministries, the majority of economics professors are in favor of keeping the available funds in 2024 constant compared to the previous year. The greatest potential for savings are seen at the Federal Ministry of Food and Agriculture and the Federal Ministry of Labour and Social Affairs. Here, 40% and 38% of respondents, respectively, call for a reduction in funding in 2024. Multiple responses were permitted. When asked about increasing spending, 5% answered “Don’t know.” When asked about reducing spending, 18% answered “Don’t know”.

Call to Meet NATO’s 2% Target

For the NATO summit in Vilnius in July 2023, NATO Secretary General Jens Stoltenberg has expressed the expectation that spending 2% of gross domestic product (GDP) on defense should no longer be considered an ambition, but a floor. Germany will spend about 1.6% of GDP on defense in 2023 (Dorn et al., 2023). Setting 2% of GDP as the minimum level for defense spending would have a noticeable impact on the German government budget. Against the backdrop of the NATO summit and the ongoing debate on the defense budget, we also asked the economists about their views on defense spending.

Overall, more than three-quarters of economics professors are in favor of defense spending of 2% of GDP or more. The primary reason given is that this is the amount agreed within NATO and that international agreements should be adhered to. In addition, it is pointed out that the current geopolitical environment requires modern and well equipped German Armed Forces. With regard to German defense spending, 33% of the participants even support increases to more than 2% of GDP. They argue that, due to long years of investment deficits, there is a great need to catch up in order to be able to guarantee external security. On the other hand, 16% of economists are in favor of defense spending below 2% of GDP and reject compliance with the 2% target. They argue that the funds are needed more in other areas, that a higher defense capability should be achieved through reforms rather than more money, and that rearmament should be viewed skeptically in principle. Just under 6% answered “Don’t know.”

Increase in Defense Spending Also in the Core Budget

While the “Special Fund for the German Armed Forces” was set up as an extra budget with a volume of EUR 100 billion, funding for the Ministry of Defense in the core budget declined slightly between 2022 and 2023. For 2024, 71% of economists support an increase in funding for defense in the core budget. There are a number of reasons for this. For one thing, a fundamental skepticism toward the special fund is evident. Economists point out that it is debt-financed, non-transparent, and, in contrast to the core budget, conceals the fact that national defense is a core task of the state that must be financed on a permanent basis. Accordingly, an increase in the core budget would be seen as an important political signal for a better funding of the Bundeswehr in the long term. Further, reference is also made to the special fund’s practical weaknesses. Since it is only allowed to cover procurement expenditure, the core budget must also grow in order to be able to finance the rising spending on operating costs such as salaries and pensions. Combined with a growing core budget, the special fund could be used to address the investment backlog of the past. On the other hand, 17% of economists oppose an increase in funding for defense in the core budget. They consider the special fund to be sufficient and demand that procurement and the Armed Forces in general should first be reformed before they receive further funds. A total of 12% answered “Don’t know.”

Financing Higher Defense Spending through Consolidation in Other Areas

In 2023, the gap between actual defense spending and the 2% target in Germany is about EUR 17 billion (Dorn et al., 2023). This is 0.4% of GDP and 3.6% of the federal budget. The overwhelming majority of economists surveyed are in favor of closing this gap in part or in full – or even making funds available in excess of this. According to 71% of the economists, the necessary financial resources should be generated through consolidation in other areas. In addition, 33% of the participants support tax increases and 16% new debt to close the gap. In contrast, 7% of the economists do not want to close the gap, 3% answered “Don’t know,” and 4% answered “Other.” Multiple responses were permitted.

No Exceptions for Defense Spending in EU Debt Rules

A full 73% of economists reject exceptions for defense spending in the EU debt rules. They argue that defense is a core task of the state that must be fulfilled in the long term. They are also concerned about the consequences of such an exception, as it would lead to further exceptions and thus to a watering down of the rules. On the other hand, 20% of the participants are in favor of an exemption for defense spending under the EU debt rules. They argue that in the current geopolitical situation, sufficient funds must be made available, even in the short term, to improve defense capabilities in Europe. Meanwhile, 7% answered “Don’t know.”