Germany is set to continue taking on huge amounts of new debt each year for the foreseeable future as it continues to ramp up spending on defence and infrastructure. Meanwhile residents can expect a few new and increased consumption taxes.
The Federal Cabinet plans to decide on key figures for Germany’s 2027 federal budget, and it’s financial plan until 2030 on Wednesday.
Finance Minister Lars Klingbeil (SPD) suggested that settling on budget measures has been a huge challenge.
Germany’s government is under pressure as the impact of the war in Iran worsens the economic outlook.
Meanwhile federal debt is mounting due to massive expenditure for defence and critical infrastructure, including an on-going overhaul of the nation’s major railways.
The cabinet’s budget proposal, which was shared by the German Press Agency, sets some clear priorities for where spending will continue to grow and also introduces new taxes.
The big numbers: Total expenditure, defence and debt all up
Expenditure in the core budget for 2027 is planned to be €543.3 billion, according to the Ministry of Finance. That’s just a little less than €20 billion more than the current year, when expenditure is planned to be €524.5 billion.
Germany’s defence budget is to be around €105.8 billion in 2027, after €82.7 billion this year. Defence spending is set to continue rising sharply until 2030 – in order to significantly strengthen the German army (Bundeswehr).
To finance all of that expenditure, Germany’s national debt is expanding rapidly.
New debts of €110.8 billion are estimated in the core budget in 2027, after €98 billion in the 2026 budget plan. In 2028, new debts of almost €135 billion are expected.
Beyond the core budget, there are further debt-financed expenditures in the ‘special fund’ for the modernisation of infrastructure and defence. Around €27.5 billion are to flow from the Bundeswehr special fund in 2027, and €58.2 billion from the infrastructure and climate neutrality special fund.
Further investments
Germany is to continue its efforts to rehabilitate dilapidated bridges, broken roads and the nation’s railway network, with billions of euros in investments planned in the coming years.
More than half of the expenditure of Germany’s special fund for infrastructure is earmarked for investments in transportation projects.
Large sums should also flow into digitisation and hospital infrastructure.
In 2027, investments are expected to be almost €38 billion higher than before the creation of the special fund. Critics, however, accuse the federal government of not using the special pot for the specific investments it was designed for, and instead shifting money from the core budget.
READ ALSO:
New taxes
To help Germany increase its revenue amidst this spending bonanza, the government intends to introduce some new taxes, including levies on sugar and plastics.
Higher taxes on tobacco and alcohol are also expected.
These taxes would not amount to anywhere near the amount of debt that is planned in the coming years, but are seen as necessary revenue streams for financing growing gaps in the budget, such as in public health insurance.
According to the Ministry of Health, a levy on sugar-sweetened beverages would amount to an estimated revenue of around €450 million per year.
Growing budget gaps
According to the cabinet, the 2027 federal budget would effectively close a gap that had previously amounted to €34 billion. But from 2028 onwards, huge budget gaps remain.
For 2028, this would still amount to €30 billion, according to the Ministry of Finance. In 2029, the government would be €51 billion in the red, and in 2030 by around €60 billion.
Planned changes in the repayment of loans taken out during the Covid pandemic are expected to help cushion the economic constraints. But the bigger issue is that the budget is increasingly affected by rising interest expenses on all the debt the government is taking on.
Interest on national debt is projected to rise from €30 billion in 2026 to around €43 billion in 2027 and to €78.7 billion in 2030 – managing this is expected to severely limit the federal government’s room for manoeuvre in coming annual budgets.
Savings unknown
Part of how the budget gap for 2027 was closed was due to a savings target set by the Ministry of Finance, which instructed all government ministries to aim for a savings target of one percent. This amounts to a total savings in the federal budget of around €4 billion per year.
However, many of these action items have not yet been implemented, and it seems that there is still remaining disagreement on exactly where some of these savings are to come from.
Klingbeil’s adviser Jens Südekum wrote on X that the Ministry of Finance had presented a strike list of subsidies and tax breaks, but that “the Union still has a stomach-ache here.” (Read: we can expect further political bickering around taxes and budget measures well into the summer, and likely beyond.)
What comes next?
A big looming unknown is whether the federal government will spend even more money to relieve the burden on people and the economy if the Iran war lasts longer, and whether it will collect less taxes as a result of the crisis.
If yes to either or both, the government could find itself looking for even more places to save in the budget even just a few months down the line.
For now the ministries are set to present their financial plans, including savings proposals. In July, a completed draft of the budget law should be announced, which would then be debated in the Bundestag in the autumn.
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: thelocal.de
