The Federal Cabinet approves the draft budget for 2026.

This is the second budget draft in a short period of time. Just a few weeks ago, the Federal Cabinet approved its plans for this year – on Wednesday, the 2026 budget will be discussed. The major challenge, however, lies in the years thereafter – because there is a huge gap in the financial planning up to 2029. Federal Finance Minister Lars Klingbeil (SPD) has already warned the conservative-red coalition of major austerity measures in the foreseeable future. Following the Cabinet's decision, it's the Bundestag's turn.

Expenditures of €520.5 billion are planned for 2026, which is 3.5 percent more than estimated for this year. The 2025 budget is to be approved in September. Investments are expected to reach €126.7 billion in 2026 – for example, the renovation of bridges and railway lines, increased digitalization, and more funding for education.

The federal government intends to borrow €89.9 billion in new loans in the core budget in 2026. In addition, there will be new debt totaling €84.4 billion from the two special funds – one for infrastructure and climate protection, and the other for the Bundeswehr. A total of more than €850 billion in new debt is planned for the years 2025 to 2029. The cabinet draft budget identifies investments for rapid growth, increased employment, and the modernization of Germany as key priorities – as well as for strengthening external and internal security. Structural reforms are also mentioned, among other things, to ensure that funds from the special fund can be used quickly to improve infrastructure.

As usual, the largest budget is that of the Ministry of Labor and Social Affairs, with approximately €197.4 billion—almost four percent more than planned in the 2025 budget. By far the largest single item in the entire budget is the further increase in federal subsidies to the pension insurance system, at approximately €127.8 billion. According to the cabinet proposal, federal benefits will increase to a total of approximately €154.1 billion by 2029.

Approximately €41 billion is budgeted for the citizen's allowance and the federal government's contribution to housing and heating costs in 2026. This is approximately €1.5 billion less than planned for 2025. The proposal justifies this by stating that the federal government expects a revival of the labor market, which should lead to a declining number of benefit recipients and thus to lower expenditures.

The Bundeswehr is set to receive significantly more funding. Defense spending of approximately €128 billion is planned for 2026. To strengthen the Bundeswehr, the debt brake on defense spending has been relaxed. Defense spending is expected to continue to rise massively in the coming years.

The draft budget for 2026 and the financial planning up to 2029 "reflect" projects announced in the coalition agreement, the document states. These include an increase in funding for social housing, more money for daycare centers, and a continuation of the Deutschlandticket for local and regional transport – as well as a reduction in VAT on meals in restaurants and an increase in the commuter allowance. At the same time, however, it states that all projects are based on the premise of prioritizing growth and equity. "Further measures can only be implemented if the necessary financial flexibility is realized."

No funds are currently earmarked for a reduction in the air travel ticket tax. "Currently, there is no foreseeable leeway in the federal budget," government sources said. The air travel tax was significantly increased in May 2024. This potentially increases the cost of passenger flights from German airports.

The financial planning also does not include any mention of a reduction in electricity taxes for all businesses and private households. This would cost an additional €5.4 billion, and appropriate flexibility would have to be created for this.

Cuts are planned in the 2026 budget, for example, in development spending. There will also be job cuts in the federal administration—except in security agencies. The savings rate for 2026 is expected to be 2 percent.

The 2027-2029 financial planning reveals a large budget gap totaling approximately €172 billion. The gap has widened even further compared to the key figures from mid-June. One reason for this is billions in compensation for municipalities and states due to tax relief for companies. "The 2027 budget will be an enormous challenge for the government," said Klingbeil.

In order to strengthen state revenues, the cabinet proposal calls for “consistent” action against tax fraud and financial crime.

In light of rising billions in costs for social systems such as pensions, healthcare, and long-term care, the CDU/CSU and SPD have agreed to establish reform commissions. According to the cabinet proposal, these commissions are expected to present results that will also help ease the burden on the federal budget. However, this could cause major conflict.

Green Party budget expert Sebastian Schäfer said the coalition has no plan for the future. Despite historic levels of debt, budget deficits have grown by billions in just a few weeks. "This is how responsibility is postponed, digitalization is delayed, climate protection is ignored, and international solidarity is denied."