German Government to Approve 2027 Budget with Increased Defense Spending and Debt

Germany's federal government is preparing to approve the 2027 budget, a move that signals a significant shift in fiscal priorities, as reported by Die Zeit. The proposed budget outlines a substantial increase in overall spending, reaching 543.3 billion euros in the core budget, up from 524.5 billion euros in the current year. This expansion is driven by a notable rise in defense expenditures, which are slated to jump to approximately 105.8 billion euros in 2027, a considerable increase from 82.7 billion euros this year.

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The budget is a huge challenge.

The strengthening of the Bundeswehr (German Armed Forces) is a central theme, with defense spending projected to continue its upward trajectory through 2030. This aligns with NATO's defense spending targets, with Germany's defense expenditure as a percentage of GDP expected to rise to 3.1% in 2027, up from 2.8% currently, and further to 3.7% by 2030. This increased investment reflects Germany's commitment to enhancing its military capabilities in response to the evolving geopolitical landscape.

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To bring Germany back to a growth course, clear prioritization of federal spending and structural consolidation of the federal budget are necessary.

Alongside the increased military spending, the budget also anticipates a rise in new government debt. The core budget plans for new borrowing of 110.8 billion euros in 2027, an increase from 98 billion euros in 2026. Further borrowing is planned for subsequent years, with nearly 135 billion euros projected for 2028. These figures do not include debt-financed spending from special funds dedicated to infrastructure modernization and defense.

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The defense budget is to amount to around 105.8 billion euros in 2027 – after 82.7 billion euros this year.

In addition to the core budget adjustments, the government is exploring new revenue streams. The introduction of a plastic tax and a "sugar tax" are under consideration, with the latter aimed at generating an estimated 450 million euros annually to support the statutory health insurance system. Proposed increases in alcohol and tobacco taxes are also part of the fiscal strategy. The budget's overarching goal, as stated by Federal Finance Minister Lars Klingbeil, is to prioritize federal spending and achieve structural consolidation to steer Germany back towards economic growth.

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New debt of 110.8 billion euros is planned in the core budget.