Germany's 2027 budget: more defence spending, social cuts and new taxes

The German government has approved a draft of its 2027 budget. Here’s how the money will be spent and how budgetary changes may affect you:

German gov’t approves 2027 budget draft

Germany’s CDU/CSU-SPD coalition government has approved a draft of its 2027 budget and financing plans through 2030.

Finance Minister Lars Klingbeil (SPD) announced the government had managed to plug a 34-billion-euro hole in the 2027 budget. However, a 100-billion-euro funding gap remains in the financial plan through to 2030.

The government plans to take on more debt, and this money will predominantly go to funding the military. "We cannot defend ourselves against Putin with a balanced budget,” Klingbeil said in a press conference. "We therefore have to make up, in the shortest possible time, for three decades during which our military was cut back."

Alongside increased military spending, the budget includes social security cuts, the reallocation of funding originally earmarked for climate protection to other areas, and the introduction of new taxes. Let’s take a closer look at the plan:

Social security cuts

In 2027, the government will allocate less money to funding the social security system. Funding for the pension system will be cut by around 3 million euros, and funding for the statutory health insurance system cut by 1,8 billion euros. 

According to estimations from the Deutsche Rentenversicherung, the organisation responsible for managing and distributing state pensions, these cuts mean contribution rates will likely have to rise from 18,6 percent to 18,8 percent. This means that employers and employees, rather than the government, will be paying more to fund the state pension system.

Increased defence spending

In 2027, the government plans to spend a total of 555,4 billion euros, 20 percent of which (109,7 billion euros) has been earmarked for defence spending. 

The budget share spent on defence is only expected to grow through 2030, when an estimated 183,7 billion euros of a 653,4-billion-euro budget will be allocated to the military.

Klingbeil argued that Germany’s record-high defence spending was justified against the background of “Putin's imperialist delusions to a degree we haven't seen in a very long time”. 

Reallocation of climate protection funds

In 2023, the SPD-Greens-FDP coalition announced that 211,8 billion euros would be allocated to a Climate Transformation Fund (KTF) to help Germany reach its goal of becoming climate-neutral by 2045.

The fund has since been chipped away at. In 2024, then-chancellor Olaf Scholz (SPD) announced that the KTF would be cut by 12 billion in 2025, and by a total of 45 billion by 2027.

Now, revenue of 2,7 billion euros from the European Emissions Trading Scheme is being channelled from the KTF into the main budget. "We've only just got through the first heatwave of the summer; the need for action couldn't be clearer," BUND climate expert Tina Loeffelsend said in response to Klingbeil's plan.

According to 2023 projections, Germany’s current climate policy means that the effects of the climate crisis, such as drought and flooding, are set to cost the country between 280 and 900 billion euros by 2050.

Taking on more debt

In 2025, the German parliament voted to relax the country’s debt brake (Schuldenbremse). The Schuldenbremse was introduced shortly after the 2008 financial crisis and ruled that Germany’s annual debt cannot be more than 0,35 percent of its annual GDP. 

Since the Schuldenbremse was relaxed in 2025, the government has been taking on more debt. This approach to plugging funding gaps will continue. In 2026, net borrowing by the government is forecast to reach 98 billion euros; this will increase to 118,7 billion euros in 2027 and to 219,5 billion euros by 2030.

Introducing new taxes

The government plans to introduce multiple new taxes to partially plug funding gaps. A plastic tax will be introduced in 2027 and is forecast to generate 1 billion euros in tax revenue. 

Alcohol and tobacco, which are relatively cheap in Germany, will be taxed more heavily. A tax on sugary drinks is also in the works. Raising taxes on alcohol, tobacco and sugary drinks is estimated to bring in 1,9 billion euros in additional tax revenue each year.

What happens next?

With parliament due to break for summer recess on July 10, budget discussions will now be parked until September. 

The draft budget will be debated when parliament returns to session, and amendments will likely be made before the final draft heads to a vote in the Bundestag and Bundesrat before the end of the year.