BERLIN (Reuters) -Germany’s cabinet approved the first draft of its 2024 budget and financial plans through 2027, the finance ministry said on Wednesday, as Europe’s biggest economic power curbs spending that surged in response to COVID-19 and the Ukraine war.

“Today we have adopted a budget proposal aligned with fiscal realities,” Finance Minister Christian Lindner said in a media presentation of the plan, which includes cutting new public borrowing to within constitutionally mandated limits next year.

“We are now ending the crisis era of expansive fiscal policies,” he said.

Lindner plans net new debt of 16.6 billion euros ($18.1 billion) for 2024, respecting Germany’s debt brake that constitutionally limits the budget deficit to 0.35% of economic output.

The brake was suspended between 2020 and 2022 to help cushion the economic impact of the pandemic and the jump in energy prices that followed Russia’s invasion of Ukraine.

The new budgetary plans include 54.2 billion euros in investments in 2024 and Lindner said the priorities would be digitalisation, mobility, education and research.

Defence is also a priority. The only ministry not facing cuts is defence as Germany plans in 2024 to comply with the NATO target of 2% of gross domestic product devoted to military spending. That means 51.8 billion euros is budgeted for defence and 19.2 billion in extra-budgetary funds for the armed forces.

Lindner said any additional spending in defence in the financial plan up to 2027 would have to come from structural measures, which could foster economic growth, leading to higher revenues.

He said he did not want to assign unused funds from the Economic Stabilisation Fund, which is earmarked for energy support related to the Ukraine war, for other political goals.

So far, he said 52 billion euros have been disbursed of a possible 200 billion euros by the time the fund is closed next year.

The details on the Climate and Transformation Fund, with around 177.5 billion euros budgeted for the period between 2023 and 2026, are pending until mid-August.

Following Lindner’s first proposal, a detailed budget draft must be sent to the Bundestag, or lower house of parliament, by mid-August at the latest.

Despite the agreement on the draft budget after months of negotiations, discussions on some controversial points will continue during the summer break.

Cuts in the parental allowance have triggered a dispute between Lindner’s Free Democrats FDP and the Greens. The financial requirements of the basic child allowance are also disputed between the coalition parties.

In the first week of September, the Bundestag would then discuss the draft in a plenary session for the first time. Its deadline for deciding on the entire federal budget will be the end of the budget week on Dec. 1.

Between now and then, the draft budget is likely to change significantly, in part to take into account the new tax estimate due in autumn and an adjustment of economic expectations.

According to the finance ministry, from 2025 to 2027, there will be a budget gap of around 5 billion euros per year and it is not yet clear how that will be filled.

($1 = 0.9181 euros)

(Reporting by Christian Kraemer, Holger Hansen and Maria Martinez Editing by Friederike Heine, Mark Potter and Barbara Lewis)

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