2027 budget draft approved in Germany: New borrowing to reach 203.6 billion euros

In Germany, the Cabinet has approved the 2027 federal budget draft and the fiscal plan extending through 2030. While the draft projects a total of 203.6 billion euros in new borrowing for next year, the highest priority in expenditures has been allocated to defense items.

According to the Ministry of Finance, total expenditures in the federal budget are planned to be increased to 555.4 billion euros in 2027. Expenditures are expected to rise to 588.2 billion euros in 2028, 597.8 billion euros in 2029, and 635.4 billion euros in 2030. For tax revenues, a projection of 394.7 billion euros was made for 2027 and 437.3 billion euros for 2030.

DEFENSE SPENDING TAKES CENTER STAGE

According to the draft, the Ministry of Defense budget is targeted to be increased from 82.7 billion euros to 109.7 billion euros. Defense spending is planned to continue increasing in subsequent years, reaching 153.9 billion euros in 2028 and 183.7 billion euros in 2030.

With this increase, the government aims to reach 3.5 percent of Gross Domestic Product by 2029 in line with NATO's defense spending target. It was stated that the amount allocated for military and logistical support to Ukraine will be maintained at the 11.6 billion euro level in the 2027 budget.

According to the budget draft, net borrowing in the federal government's core budget is expected to reach 118.7 billion euros. When the German Armed Forces special fund and infrastructure and climate protection items are also taken into account, the total new debt burden rises to 203.6 billion euros.

Conversely, it is stated that there is a deficit of approximately 107 billion euros in the medium-term fiscal plan covering the 2028-2030 period. To limit the deficit, an additional revenue of 455 million euros is targeted by increasing taxes on alcoholic beverages, sparkling wines, and pre-mixed drinks by 20 percent.

Additional measures include reducing federal subsidies for pension insurance by 1 billion euros, saving 450 million euros by eliminating emergency additional support in child benefits, transferring 2.7 billion euros from the Climate and Transformation Fund to the core budget, and postponing repayments of the army special fund until 2033.

We are making major investments for the security, resilience, and defense of our country. Peace in Europe is under threat due to Russia's aggression, and a balanced budget alone will not be enough to defend Germany.

The draft has received criticism from business associations, trade unions, and environmental organizations. Tanja Gönner, CEO of the Federation of German Industries, described the increase in spending and borrowing as "worrying," drawing attention to interest costs. Stefan Körzell from the German Trade Union Confederation described the cuts to social welfare items while increasing military spending as a "major imbalance."

The German Federation for the Environment and Nature Conservation also found the plans unfavorable in terms of climate protection policies. The coalition's plan to implement a sugar tax on beverages starting January 1, 2027, was another point that sparked reaction in the business world.