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German cabinet agrees budget framework, hikes spending without net new debt

BERLIN, March 15 (Reuters) - Germany plans to gradually increase state spending until 2021 without net new debt, sticking to its goal of running a balanced budget despite international calls to hike investment in infrastructure and defence more strongly.

Chancellor Angela Merkel’s cabinet on Wednesday passed the preliminary framework for the 2018 federal budget and its fiscal plans through to 2021 as suggested by Finance Minister Wolfgang Schaeuble, government sources said.

According to the plans seen by Reuters, Germany will boost overall spending by 1.9 percent to 335.5 billion euros in 2018, with the extra money going mainly to fund refugee integration, development aid, defence and domestic security.

Defence spending, which was 35.13 billion euros in 2016, will rise to 38.45 billion euros in 2018, under the plans - a figure that is projected to represent 1.23 percent of output.

U.S. President Donald Trump has called on Germany and other NATO members to accelerate efforts to meet the alliance’s target of spending 2 percent of economic output on defence.

Public investment will edge down to 35.7 billion euros next year from 36.1 billion euros in 2017 before bouncing back to 36.2 billion euros in 2019, according to the plans.

From 2019-2021, the federal government aims to raise overall spending by an additional 20 billion euros to 355.6 billion euros.

With tax revenues expected to keep rising and borrowing costs to remain low, the cabinet’s budget framework does not foresee the need for net new borrowing until 2021.

The cabinet is expected to approve the draft budget for 2018 and the mid-term fiscal plans on June 28.

Germany is heading into a closely contested federal election in September. A leftist coalition government led by the centre-left Social Democrats could put a bigger emphasis on investment.

This means that the budget plans for 2018 and beyond could be subject to revisions if a new coalition takes power. (Reporting by Matthias Sobolewski and Michael Nienaber; Editing by Madeline Chambers)