Germany’s coalition government has finalized its draft federal budget for 2026, marking a significant shift toward expansive fiscal policy amid economic stagnation and heightened defense needs.
The budget, approved by the Bundestag’s budget committee in a marathon session ending early on November 14, 2025, totals €524.5 billion in core spending—€4 billion more than initially projected—and includes unprecedented new borrowing of approximately €180 billion when accounting for special funds.
Germany’s 2025 federal budget, adopted on September 18, 2025, after significant delays due to the collapse of the previous government and early elections, marks a pivotal shift from fiscal austerity to expansive public investment.
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Totaling €502.5 billion—an increase of €22 billion from the prior draft—it incorporates constitutional changes from March 2025 allowing unlimited debt financing for defense spending above 1% of GDP and establishing a €500 billion off-budget infrastructure fund.
This package, part of a broader €1 trillion spending initiative, prioritizes defense modernization, infrastructure, climate action, and economic stimulus amid recessionary pressures and geopolitical tensions.
Key spending hikes include €86 billion for defense ramping to €153 billion or 3.5% of GDP by 2029, €115 billion in investments by year-end, and €100 billion for climate-related projects. Priorities focus on transport especially rail, housing, digital infrastructure, education, and the energy transition, with at least 10% of the core budget now dedicated to investments—up from a historical average of 2.7%.
The budget assumes optimistic GDP growth 0.9% potential output and inflation 2.6% deflator, enabling initial net expenditure growth of 4-4.5% through 2026 before tapering to 1.6% by 2029.
It also introduces tax incentives, such as 30% enhanced depreciation for business equipment investments through 2027 and relief for working pensioners, alongside commissions to reform pensions and social welfare starting in 2026.
This figure represents the second-highest annual borrowing in postwar German history, surpassed only by the €215 billion peak during the COVID-19 crisis in 2021.
The plan now heads to a final plenary vote in the Bundestag during the parliamentary week of November 25–28, 2025, where the governing coalition (SPD, CDU/CSU, and Greens) holds a slim majority sufficient for passage, though opposition from the AfD and FDP is expected to fuel heated debate.
The €180 billion in total new debt breaks down as follows: €97.9 billion up from €89.8 billion in the July draft, driven by welfare expansions, pension adjustments, and economic relief measures. €500 billion Infrastructure and Climate Fund off-budget, exempt from debt rules: €58.9 billion in new borrowing for 2026, funding roads, railways, and green initiatives.
Defense Exemptions post-March 2025 debt brake reform. Additional borrowing to support NATO commitments, with total defense outlays reaching €117.2 billion 2.8% of GDP.
This borrowing surge triples the €50.5 billion from 2024 under the previous Scholz government, enabled by constitutional reforms that suspend the “debt brake” limiting new debt to 0.35% of GDP for defense and infrastructure during structural challenges.
+€4bn over initial draft; includes €58.3bn in investments up slightly. +€20bn; meets NATO 2.8% GDP target; €500bn multi-year allocation starts drawdown. Roads, rail, schools; €500bn fund drawdown begins.
Pension hikes, disability support; targeted relief for families and seniors. Investments aim to counter 0.2% GDP contraction in 2025 and boost growth to 1.5% in 2026 via stimulus for transport, education, and digitalization.
Geopolitical Pressures: Surging defense amid Ukraine aid and NATO pledges; total military outlays to hit €161.8 billion by 2029. Critics warn of inflation risks and a projected €30 billion shortfall in 2027, potentially straining future finances in Europe’s largest economy.
Supporters, including SPD’s Thorsten Rudolf, emphasize long-term benefits from the €1 trillion+ in multi-year funds. The vote could signal a broader EU trend toward relaxed fiscal rules, but failure—unlikely given the coalition’s 316 seats—might trigger snap elections.