The Ifo Institute has presented an extensive set of budgetary recommendations aimed at consolidating the German federal budget by 2030. According to the institute's analysis, federal savings could reach up to 60 billion euros annually through a series of reforms mainly affecting families and retirees. These proposals are part of a broader effort to address ongoing financial shortfalls in the federal budget and to prevent further increases in government debt.

Major Proposed Adjustments to Family Benefits

A key element of the Ifo Institute's plan involves substantial modifications to parental benefits (Elterngeld). Currently, the income threshold for receiving parental benefits stands at 175,000 euros. The institute suggests reducing this limit to 50,000 euros, thereby significantly narrowing the eligibility pool. The proposed change would target parental benefits more directly toward households with lower incomes. This step alone is projected to save the federal government approximately 3 billion euros annually. At present, the government allocates about 7.5 billion euros per year to parental benefits, which offer new parents a replacement income--typically 65 percent of their previous net earnings, capped between 300 and 1,800 euros per month.

Adjustments to Pensions and Social Programs

The analysis also examines potential savings within the pension system, especially through changes to the so-called "Mütterrente" (mothers' pension). The Ifo Institute outlines a scenario where pension increases would be linked to inflation rather than wage growth. Additionally, it recommends reducing the mothers' pension to 50 percent of its current value over the next four years. This benefit had previously been expanded following political negotiations, but any reduction would significantly impact recipients. The proposed pension adjustments form part of a larger plan to save approximately 54 billion euros through social spending reforms and subsidy reductions.

Budgetary Pressure and Upcoming Reform Packages

The German government is under increasing pressure to identify spending reductions in the context of the next federal budget. The draft of the 2027 budget is expected to be presented to the federal cabinet in early July. Projections indicate substantial funding gaps in the years ahead, prompting calls for swift and decisive fiscal action. In addition to targeted savings in social programs, the government is preparing a comprehensive reform package, with pension reform as a central component.

Proposed Tax Reforms and Subsidy Cuts

Alongside changes to social benefits, the Ifo Institute's report advocates for a phased reduction of federal subsidies. The recommendation is to decrease federal financial assistance by 15 percent annually for four years. This broad-based approach--sometimes referred to as the "lawnmower method"--finds support among some policymakers. The aim is to streamline federal expenditures and redirect resources toward investments that promote economic growth. The report also mentions a potential reform of income tax, with the intention of providing relief to low- and middle-income earners, though specific details and funding strategies remain under discussion.

Political Reactions and Next Steps

Proposed changes to parental and mothers' pensions have sparked debate among political leaders. While some parties, including the Christian Social Union (CSU), have resisted reductions to the mothers' pension, others have called for broad, across-the-board savings to address budgetary constraints. The Ifo Institute emphasizes that only comprehensive fiscal consolidation can prevent a significant rise in new borrowing and national debt in the coming years.

• The Ifo Institute's proposals form part of a broader national debate on fiscal sustainability and the future structure of Germany's welfare programs.
• Final decisions on the budget and reform measures are expected following legislative discussions and cabinet approvals in the coming months.