German cabinet approves spending hike without new debt

Slideshow ( 2 images )

BERLIN (Reuters) - The German cabinet on Wednesday passed a draft budget for 2020 that calls for a 1.7 percent spending hike and relies on ministries to cut costs to avoid new debt in light of an economic slowdown, a government official said on Wednesday.

Finance Minister Olaf Scholz’s fiscal room for maneuver is getting tighter because tax revenues are likely to come in lower than expected this year as exporters are hit by weaker foreign demand, trade disputes and Brexit uncertainty.

A government official said that the cabinet approved Scholz’s draft budget plan for 2020 and the mid-term financial planning until 2023.

The draft foresees spending of 362.6 billion euros, but sources have said ministries will have to identify total spending cuts of 625 million euros each year, with program delays and other measures to contribute additional savings.

The draft budget foresees a further increase in military spending in 2020 but does not provide a plan for how to reach the NATO target of spending 2 percent of economic output on defense in the years beyond.

Military spending would rise by 2.1 billion euros over a previous plan for 2020, boosting the share of defense spending to 1.37 percent of gross domestic product from 1.25 percent in 2018 and 1.3 percent this year.

The military budget is slated to rise to 45.1 billion euros in 2020 from planned spending of 43.2 billion this year. But the share of military spending would drop back to 1.25 percent in 2023, with any further spending increases to be negotiated year by year, sources have said.

Reporting by Michael Nienaber; Editing by Madeline Chambers