2025 Federal Budget – High Investments, Rapid Achievement of the NATO Target, and High Debt

On June 24, 2025, the Federal Cabinet approved a second draft of the 2025 federal budget as well as the financial plan through 2029, including the KTF. Expenditures total 503 billion euros, net borrowing amounts to 81.8 billion euros (compared to 51.3 billion euros in the first draft), and investment expenditures in the core budget amount to 62.7 billion euros (the required minimum investment ratio of 10 percent is met). Total federal investments are set to rise permanently to over 100 billion euros annually.

Germany is also expected to spend more than 3.5 percent of its gross domestic product on defense as early as 2029 (2025: approx. 2.4 percent). In addition, approximately 850 billion euros in new debt is to be incurred by 2029 (core budget: 500 billion euros; special fund: 347 billion euros). By 2029, the public debt-to-GDP ratio is thus expected to rise by an estimated ten percentage points to around 73 percent, and the federal government’s debt burden—which has grown over several decades—is projected to fall from its current level of 1,617 billion euros (as of April 30, 2025) will more than double within five years to 2,464 billion euros.

In the meantime, the federal budget has been approved with a few minor changes. The final roll-call vote took place on September 18.

2026 Federal Budget – Continued Rise in Investments and Few Changes in Financial Planning

On July 30, 2025, the Federal Cabinet approved a draft of the 2026 federal budget. Expenditures total 520.5 billion euros (+3.5 percent compared to 2025), net borrowing in the core budget at 89.9 billion euros (more than 17 percent of the budget financed by borrowing), and investment spending in the core budget at 56.1 billion euros. Thus, including special funds, a total of 126.7 billion euros will be invested. Consequently, the 2026 federal budget can also be described as an investment budget. Overall, the 2026 draft budget and the updated medium-term fiscal plan contain only marginal changes compared to the figures presented in June.

Major Budgetary Challenges Beginning in 2027

Starting in 2027, a massive financing gap (approximately 172 billion euros by 2029) looms despite the planned total new borrowing of 850 billion euros through 2029. For 2026, the government has managed to close a budget shortfall of approximately 16 billion euros.

The planned high levels of investment send important signals of growth for an economic revival. However, they must be scaled up. The states and municipalities must also significantly increase their investments. Otherwise, the spending will not stimulate growth.

Furthermore, the shift of investments from the core budget to the new special fund has been criticized by various parties. Among other things, this results in fewer additional investments in infrastructure, construction, and health care, as well as reduced planning certainty in the long term.

The budget still lacks a clear commitment to structural reforms and, consequently, to prioritization and consolidation. The federal government therefore faces an autumn of uncomfortable but necessary decisions regarding further reforms and cuts to discretionary spending. Measures to accelerate planning procedures, reduce bureaucracy, and lower taxes and fees are essential.

On September 23, Federal Minister Klingbeil delivered the introductory speech on the 2026 federal budget, followed by debates. The final reading will take place on November 13, with the third reading and a final roll-call vote on November 27.