German Budget 2027: Key Updates on Spending, Borrowing and Social Policy
Main Highlights of the 2027 German Budget Agreement
By Holger Hansen
BERLIN, Nov 13 (Reuters) - Germany's budget committee agreed on the 2027 budget in the early hours of Friday, signing off on the second-highest level of borrowing since World War Two as the government boosts spending on infrastructure and defence.
Here are the main points of the package, which is now free to be passed by parliament.
Spending and Borrowing
Total spending is set at €560.9 billion ($620.3 billion), up 7% from the previous year, with tax income reaching €396.2 billion.
Overall new borrowing amounts to more than €210 billion, the second-highest level recorded after the €215.4 billion in 2021, during the COVID-19 pandemic.
Core Budget and Special Funds
Core budget borrowing comes to just under €123 billion. A further €57.8 billion comes from the Infrastructure and Climate Neutrality Special Fund and €29.6 billion from the Bundeswehr Special Fund for the German armed forces. Both funds were set up as part of measures agreed last year to loosen constraints on borrowing for defence and infrastructure.
Investment
Investment spending comes to €61.8 billion, up from €58.4 billion in 2026, with additional investment from the Infrastructure and Climate Neutrality Special Fund.
Defence
Defence spending rises to €109.7 billion from €82.7 billion a year earlier, with additional spending from the Bundeswehr Special Fund also programmed. The focus will be on modernisation and re-equipping the armed forces as Germany continues its push to rebuild armed forces that had shrunk drastically after decades of underinvestment.
Labour and Social Policy
Labour and Social Affairs Budget
The budget for the Ministry of Labour and Social Affairs, the largest in the overall budget, comes to just over €203 billion, up from €197 billion in 2026. Some cuts are planned in basic income support for jobseekers. The budget reduces the figures for basic income support, as well as for accommodation and heating, by a total of €1.3 billion, on the assumption that stronger growth would lower costs. Basic income support remains at €563 a month.
Unemployment Benefits and Labour Office Debt
The Federal Labour Office is expected to require a loan of €8.2 billion to cover higher unemployment benefit costs. By the end of 2027, it would have debt amounting to around €20 billion.
Pension System Changes
Federal government subsidies to the pension system will be cut by €3 billion while additional burdens will be placed on employers and workers, a move that has angered employers, who note that the government is promising to fund higher maternity pensions and guarantee a pension level of 48% of average annual earnings from the budget.
Taxes and Savings Measures
Tax Policy Updates
The government has scrapped plans for a tax on plastic packaging materials expected to generate revenue of €670 million next year and €1.5 billion annually from 2028.
Sugar Tax and Social Benefits
A planned sugar tax on sweetened drinks, including sodas, energy drinks and iced tea, levied on the basis of sugar content, has been postponed by half a year to January 1, 2028.
Planned cuts to social benefits have also been largely withdrawn. Housing benefit rules and allowances for children in low-income families will remain in place.
Electricity Tax Proposals
Proposals backed by Chancellor Friedrich Merz's Christian Democrats to cut the electricity tax for private consumers remain under discussion.
Exchange Rate
($1 = 0.9042 euros)
(Reporting by Holger Hansen; Writing by James Mackenzie; Editing by Hugh Lawson)
