Germany locks in its 2026 budget | DW News

Key Concepts

• 2026 Federal Budget (Germany)
• Spending and Borrowing Levels
• Core Deficit
• Special Funds (Climate, Infrastructure, Defense)
• Social Spending
• Defense Spending
• Financial Administration (Electricity Subsidies)
• Debt Service
• Investment Offensive
• Reforms (Energy Costs, Tax Relief, Red Tape, Digital Progress)
• Long-term Burden of Borrowing
• Real Growth

2026 German Federal Budget: Record Spending and Borrowing

The 2026 German Federal Budget is characterized by historically high levels of spending and borrowing. Chancellor Friedrich Merz articulated a promise to future generations: "Wir wollen weiter das Versprechen abgeben können, das in der Bundesrepublik Deutschland sehr lange gegolten hat. Unser Land soll von Generation zu Generation in einem besseren Zustand übergeben werden." (We want to continue to be able to give the promise that has held true in the Federal Republic of Germany for a very long time. Our country should be handed over from generation to generation in a better condition.)

Budget Breakdown and Deficit

• Total Spending: Projected to rise to approximately 525 billion Euros.
• Revenues: Estimated at 427 billion Euros.
• Core Deficit: This leaves a core deficit of around 98 billion Euros.

Special Funds and Expanded Spending

Beyond the core budget, special funds allocated for climate, infrastructure, and defense will significantly increase overall expenditure.

• Total Spending (including special funds): Will rise to 630 billion Euros.
• Borrowing: Climbs to over 180 billion Euros, marking the second-highest level in German history.

Allocation of Spending

The budget prioritizes several key areas:

• Social Spending: Constitutes the largest share, approximately 38% of the entire budget.
  • Pensions: Alone make up roughly 24% of the total spending.
• Defense: Follows with nearly 16% of the budget.
• Financial Administration: Accounts for about 9%.
  • Electricity Subsidies: Represent the largest expenditure within this category.
• Debt Service: Consumes around 7% of the budget.
• Other Areas: Most other budget categories receive approximately 5% or less.

Government's "Investment Offensive" and Reforms

The government has called for an "investment offensive," allocating almost 127 billion Euros, the highest amount ever. Chancellor Merz highlighted planned reforms aimed at:

• Lowering energy costs.
• Providing tax relief for companies.
• Cutting red tape.
• Driving digital progress.

Merz stated, "Wir stehen erst am Anfang dieser Reformen, die unser Land so dringend benötigt. Wir gehen mit hohem Tempo, wir gehen mit hohem Tempo an die Arbeit, aber wir wissen auch, es sind die Reformerwartungen zum Teil größer, als wir sie im Augenblick erfüllen." (We are only at the beginning of these reforms that our country so urgently needs. We are working at a high pace, we are working at a high pace, but we also know that the expectations for reforms are partly greater than we can currently fulfill.)

Economic Concerns

Economists have raised concerns that the high levels of borrowing could become a long-term burden, particularly if they do not lead to real economic growth.

Conclusion

The 2026 German Federal Budget signals a significant increase in government spending and borrowing, driven by social programs, defense, and an ambitious investment offensive. While the government emphasizes its commitment to reforms and intergenerational promises, economists caution about the potential long-term economic implications of substantial debt accumulation without corresponding real growth.