Germany Pushes On With Plan to Overhaul Healthcare and Budget

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(Bloomberg) — Germany agreed on a budget blueprint and prepared a healthcare overhaul as the governing coalition seeks to push forward a reform agenda in the face of energy upheaval and persistent infighting in Berlin. 

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Measures include steps to shore up public health insurers, spending cuts across ministries and new revenue sources such as a sugar levy. The government aims to close next year’s fiscal gap and halve the projected 2028 shortfall to about €30 billion, according to officials who laid out the plans on Tuesday. The plans are set for cabinet approval Wednesday. 

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Chancellor Friedrich Merz’s government has struggled to gain traction among voters and failed to turn around Europe’s biggest economy as energy turmoil triggered by the US-led Iran war weighs on consumers. His Christian Democratic-led bloc and the Social Democrats have committed to sweeping changes to Germany’s tax and pension system in addition to public health as a way to lift Germany out of its doldrums. 

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But Merz’s plummeting approval ratings and a surge in support for the far-right Alternative for Germany are piling pressure on the coalition to produce results. Merz’s party trailed the AfD by five percentage points, according to a survey published by Forsa on Tuesday, which registered an all-time high for the anti-immigration group at 27%. 

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The leader of the CDU-led parliamentary group, Jens Spahn, said the coalition had “lost its footing” this year with bruising election losses for both main coalition parties in regional elections and the disruption prompted by the Iran war. 

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“It’s a complicated, complex situation and of course this also does not leave the coalition unaffected,” Spahn told reporters on Tuesday after a meeting with lawmakers. 

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Inadequate Measures

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The government last week cut its growth forecast for this year in half in response to the energy crisis. Output is set to climb by 0.5% this year, down from a January projection for a 1% expansion, the Economy Ministry said. Growth next year will be at 0.9%, down from 1.3% previously. 

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The chancellor has made clear that the reform agenda is behind schedule. A weekend-long coalition meeting earlier this month that was meant to address fuel-price spikes and kick off the reform momentum produced a fuel-price cut and an optional €1,000 employer bonus — measures broadly panned as inadequate. 

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The budget and health legislation will be haggled over in parliament in the coming weeks. But if the blueprint largely holds, the measures will go a long way in scaling back Germany’s medium-term fiscal gap of around €140 billion through 2029. 

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Finance Minister Lars Klingbeil, co-leader of the Social Democrats, plans to impose a 1% budget cut across ministries, as well as measures including taxes and fees on alcohol, tobacco and sugar, the officials said. Net new borrowing will climb by more than 8% next year to €196.5 billion with a ramp-up in spending on defense and infrastructure. 

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On healthcare, Merz’s government this month presented a plan to eliminate a spending deficit that had been on course to rise to €40 billion by the end of the decade with policy action such as reining in payments, drug prices and coverage for dependents. But a plan put forward by Health Minister Nina Warken, a member of Merz’s party, was criticized by the SPD as well as the Bavarian Christian Social Union, a CDU sister party. 

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—With assistance from Michael Nienaber.

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