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(de-news.net) – The German federal cabinet has adopted the budget draft for the year 2026, projecting expenditures of approximately 520 billion euros and a new borrowing requirement of 174 billion euros. Roughly half of this debt is earmarked for two designated investment vehicles: one targeting infrastructure and climate protection, and another focused on military enhancement. The stated objectives, as outlined by the Federal Minister for Economic Affairs, center on stimulating economic expansion, improving employment rates, and advancing the country’s modernization agenda.

The Ministry of Labour and Social Affairs will receive the largest appropriation – 197.4 billion euros – representing a 4-percent increase from 2025. Allocations to the statutory pension scheme will grow to 127.8 billion euros, with annual contributions expected to reach 154.1 billion euros by 2029. Citizens’ benefits and subsidies for housing and heating are set at approximately 41 billion euros, a reduction of 1.5 billion euros from the previous year, attributed to anticipated labor market improvements.

The defence budget registers the most significant increase, rising by more than 20 billion euros to a total of 82.7 billion euros. Including supplementary funding of 25.5 billion euros through military special assets, defence-related spending is projected to constitute 2.8 percent of gross domestic product. The budget for the Interior Ministry also expands, climbing by 800 million euros to 16 billion euros, with priorities in civil protection, disaster relief, and law enforcement capabilities.

Healthcare spending will incrementally increase to 20.1 billion euros, including substantial transfers to the health fund and social insurance entities. The Ministry for Housing, Urban Development and Building will receive 7.6 billion euros, with enhanced allocations for social housing and urban renewal. Additionally, 2.7 billion euros will support climate transformation through targeted funding instruments.

Conversely, the Transport Ministry’s budget will decline by 10 billion euros to 28.2 billion euros, as infrastructure investments are redirected to the newly constituted Infrastructure and Climate Neutrality fund. Despite this reallocation, total transport-sector investments will be sustained at an unprecedented level of 33.7 billion euros. Funding for development cooperation will decrease by 330 million euros to 9.94 billion euros.

The Development Ministry will face another reduction of 330 million euros following a prior cut in 2025. In contrast, fiscal allocations for democracy promotion and voluntary civic services will be increased, with the program “Demokratie leben!” receiving an additional 9 million euros and the Federal Voluntary Service securing a further 10 million euros, as compared to the previous year.

Administrative reforms will include a 2-percent reduction in federal personnel. At the same time, financial support will be scaled up for social housing programs, early childhood education facilities, and the extension of the Deutschlandticket. Proposed measures also include a reduced value-added tax on dining services and increased tax deductions for commuters. In contrast, aviation-related tax relief will not be implemented at this stage.

The medium-term financial outlook reveals a projected deficit of approximately 172 billion euros between 2027 and 2029, arising chiefly from compensatory commitments to local governments following corporate tax adjustments. In response, governmental authorities intend to intensify enforcement against tax fraud and financial crime. Furthermore, inter-party consensus has led to the establishment of reform commissions focused on pensions, healthcare, and long-term care, with the aim of alleviating future fiscal pressures.

The Finance Minister Lars Klingbeil (SPD) has stated that budgetary planning post-2027 will encounter mounting challenges. The anticipated shortfall, attributed to rising interest obligations, compensatory payments to municipalities, and pension-related policy developments is expected to exceed 30 billion euros. To mitigate this, Klingbeil has expressed intent to engage his cabinet colleagues in dialogue, underscoring the necessity of coordinated budgetary discipline.