Ministries urged to implement stringent financial restraint by Klingbeil
The German federal government is gearing up to address a looming multi-year budget deficit, with the draft 2026 federal budget signalling a commitment to fiscal consolidation and austerity measures starting from 2027.
According to a news agency report, the new debts for the 2026 budget are estimated to be around 30 billion euros more than what is planned for the current year. The government draft, set to be approved by the cabinet on Wednesday, suggests a total of 174.3 billion euros in new debts for the 2026 budget.
Finance Minister Lars Klingbeil (SPD) has warned that substantial austerity measures will likely be necessary from 2027 onward to close the growing budget gap, which is projected to total around €172 billion between 2027 and 2029.
The government has approved a medium-term fiscal policy and structural plan (FSP) for 2025–2029, which includes a strategy of increased government spending on infrastructure, security, and defense in the short term (2025 and 2026), followed by gradually reducing expenditure growth to achieve fiscal consolidation by the end of 2029.
The consolidation plan is accompanied by initiatives to stimulate economic growth through investments and reforms. The draft 2026 federal budget reflects this approach by allowing borrowing of approximately €174 billion for investments, with a significant portion allocated for infrastructure and defence.
However, the draft also suggests that not only expenditure wishes, but also existing tasks, should be questioned. Finance Minister Klingbeil has called for strict expenditure discipline in all ministries, with the government draft of the federal budget for 2026, leaked to Reuters, stating that all departments must contribute to closing the funding gap.
Looking ahead, the government plans to use future economic surpluses and other reliefs to resolve the funding gaps. The federal government faces an uncovered budget hole of around 34 billion euros from 2027 onwards, a challenge that the government aims to tackle through significant austerity measures, fiscal consolidation, and structural reforms aimed at boosting economic growth and thereby increasing public revenues.
In conclusion, the German federal government is balancing short-term increased spending with a commitment to fiscal consolidation and austerity from 2027 onwards to manage the looming multi-year budget deficit. This approach involves tightening expenditure growth rates and promoting economic growth to sustainably address the financing gap starting in 2027.
- The government's medium-term fiscal policy and structural plan (FSP) for 2025–2029 includes an employment policy focused on increasing government spending on infrastructure, security, and defense.
- To address the uncovered budget hole of around 34 billion euros starting from 2027, the government plans to implement employment policy and structural reforms aimed at stimulating economic growth and increasing public revenues.
