This year's budget was supposed to have been signed off long ago but the process stalled after last year's collapse of former chancellor Olaf Scholz's coalition in the face of a furious row over public spending.
Following February elections, conservative Chancellor Friedrich Merz took power pledging to ramp up spending on the armed forces and to fix Germany's ageing roads, bridges and other infrastructure.
The budget passed Thursday provides for 502.5 billion euros ($595 billion) in expenditure in 2025 -- some 25 billion euros more than the previous year.
New borrowing in Europe's top economy is forecast to be 81.8 billion euros -- higher than envisaged under the previous government's plans.
Speaking before MPs voted on the budget, Finance Minister Lars Klingbeil told parliament that the government "places absolute priority on ensuring that economic growth returns to Germany, that jobs here are secured".
"This is the most important issue for the people in this country," added the minister from the centre-left SPD party, the junior coalition partners to Merz's centre-right CDU/CSU bloc.
Germany's economy has been stuck in a long downturn but there is hope that increased public spending could boost growth, if combined with key structural reforms.
Without an official 2025 spending plan, the government had been operating under emergency budget measures that allow officials to cover existing obligations but not to take on new financial commitments.
The passage of the budget should open the way for the coalition to start ramping up spending in earnest.
- Infrastructure worries -
In what was dubbed a fiscal "bazooka", Merz earlier this year amended Germany's strict debt rules to allow for greater military spending and established a fund for infrastructure spending.
Some critics have pointed out that there has not been a flood of spending since the rule change, and there have also been broader concerns over the infrastructure fund, which is being financed through debt.
A recent analysis from German think tank the Institute for Economic Research (IFO) pointed out that existing infrastructure investments were being shifted out of the main budget to the new fund.
The fund was intended to be in addition to infrastructure investments from the normal budget -- but that is not happening, the institute said.
With the 2025 budget passed, attention will now turn to balancing the budget for next year and beyond, which has already sparked tensions between the coalition partners.
The CDU/CSU and the SPD, seeking to find ways to plug a growing budget gap, have been openly clashing over Merz's plans for cuts in what he says is an "unaffordable" welfare system.
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