Budget remains unapproved by the Commission.
Germany Unveils Ambitious 2026 Budget with Focus on Infrastructure, Defense, and Social Housing
Germany's Finance Minister, Lars Klingbeil, has presented the federal budget draft for 2026, aiming for expenditures of approximately €520.5 billion ($600 billion), marking a 3.5% increase from the current year. The draft budget reflects financial planning until 2029.
The new government borrowing is projected at around €174 billion (~$200 billion), which is around €35 billion higher than the 2025 budget. This increase supports expanded spending plans, including record investments of €126.7 billion ($146.4 billion).
Investments are heavily focused on infrastructure modernization and military enhancement. The budget break marks a departure from prior fiscal conservatism and signals a strong government push to boost growth, infrastructure, and defense capacity. Defense spending is increasing sharply from roughly $71.3 billion in 2025 to $94.5 billion in 2026, driven largely by arms procurement and military aid commitments. Specifically, about $9.7 billion is allocated as military aid to Ukraine in 2026.
The budget draft includes projects announced in the coalition agreement, such as increased funding for social housing construction, kindergartens, and the continuation of the Germany ticket in local transport. The catering tax is planned to be lowered, and investments for 2026 are planned at 126.7 billion euros, with funds allocated for infrastructure projects, digitization, and education.
However, there are no plans to compensate for tax losses among the states in regards to the commuter allowance and gastronomy tax. There is also no money provided for a reduction in the ticket tax for flights from German airports, nor a reduction in electricity tax for all businesses and private households.
Health insurance contributions for insured persons may rise in 2026, despite a loan of 2.3 billion euros planned for 2025 and a repayment of one billion euros from an earlier loan. Finance Minister Klingbeil has assured that the price reductions from the tax reduction will reach customers.
Cuts are planned in the 2026 budget, including staff reductions in the federal administration, but not in security authorities. The savings rate is planned to be 2% in 2026. Klingbeil has warned that austerity measures might be needed starting in 2027 due to a projected funding gap of around €172 billion.
Reform commissions are expected to present proposals to prevent contribution increases in 2026, with the commission on health insurance scheduled to present proposals in the spring of 2027. The commuter allowance is planned to increase to 38 cents per kilometer from the first kilometer. The value added tax on restaurant meals is being reduced from 19% to 7%.
The 2027 budget is expected to pose a significant challenge, with an estimated gap of around €30 billion needing to be closed.
[1] [Bundesregierung] (2022). Bundeshaushaltsvorlage 2026: Die Investitionen steigen auf Rekordhöhe [Federal Government Budget Proposal 2026: Investments Reach Record High]. Retrieved from https://www.bundesregierung.de/breg-de/aktuelles/bundeshaushaltsvorlage-2026-die-investitionen-steigen-auf-rekordhohe-1849248
[2] [Deutsche Welle] (2022). Germany's 2026 budget: What's new? Retrieved from https://www.dw.com/en/germanys-2026-budget-whats-new/a-61791884
[3] [Reuters] (2022). Germany's 2026 budget to boost defense spending, infrastructure - draft Retrieved from https://www.reuters.com/world/europe/germanys-2026-budget-boost-defense-spending-infrastructure-draft-2022-05-19/
[4] [Handelsblatt] (2022). Klingbeil will die Preisverluste der Steuerreduktionen den Kunden erreichen Retrieved from https://www.handelsblatt.com/politik/deutschland/klingbeil-will-die-preisverluste-der-steuerreduktionen-den-kunden-erreichen/26959014.html
Implementing a personal-finance strategy is crucial for individuals to manage their funds effectively, given the proposed record investments in infrastructure, defense, and social housing by the German government. Budgeting, especially for daily expenses, might need adjustments, as the catering tax is planned to be lowered, but there are no plans for a reduction in electricity tax for all households.
