Key facts
- Germany's cabinet approved the draft 2027 budget, focusing on investment and defence spending.
- Total spending is set at €555.4 billion, with borrowing of €203.6 billion for 2027.
- Investment spending is projected to reach €117.5 billion in 2027, up from €78.9 billion in 2025.
- Core defence spending is slated to rise to €109 billion in 2027.
- The budget plans tax increases on alcohol and cuts to social benefits and pension subsidies.
- Parliamentary approval is expected by year-end after discussions begin in September.
Germany's cabinet has approved the initial draft of its 2027 budget, signaling a significant shift towards increased investment and defence spending to bolster the nation's economy and security. The budget, part of a financial framework extending to 2030, allocates €555.4 billion ($634.16 billion) in total spending, with €203.6 billion to be borrowed.
Finance Minister Lars Klingbeil emphasized the priorities of returning the country to a growth path and creating future jobs, stating, "We want Germany to be a strong and crisis-resilient country." The plan leverages a special infrastructure fund and eased borrowing rules for defence to facilitate higher spending. Over the medium term, Germany plans to borrow a total of €838.2 billion by 2030.
This increased borrowing comes with a projected doubling of interest payments by 2030, reaching €80.7 billion from €41.9 billion in 2027. Industry associations BDI and DMB have criticized the high borrowing levels, with BDI CEO Tanja Goenner noting that nearly one-fifth of tax revenue could be tied up in interest payments by 2030.
Investment spending is set to rise substantially to €117.5 billion in 2027, up from €78.9 billion in 2025, supported by a €500 billion infrastructure fund and relaxed defence borrowing rules. Core defence spending will increase to €109 billion in 2027 from €82.2 billion in 2026, with total defence and security spending reaching €130.1 billion, including support for Ukraine. Klingbeil stated that a balanced-budget policy is insufficient to defend Germany against Russia, highlighting the need to address decades of underinvestment in defence capabilities.
Germany has committed €783.8 billion to defence-related expenditures between 2026 and 2030, with €11.6 billion earmarked for Ukraine in 2027 and €8.5 billion annually thereafter. Defence spending is expected to increase from 2.8% of GDP in 2026 to 3.5% in 2029.
Despite economic challenges, the government claims significant progress in fiscal consolidation, eliminating a €34 billion shortfall for 2027. However, this is to be achieved through measures such as raising taxes on alcohol and cutting social benefits and pension subsidies. A funding gap of approximately €109 billion remains for the years beyond 2028.
The draft budget will now proceed to parliamentary discussions in September, with final approval anticipated by the end of the year.