Government Funds for Pension, Citizenship Allowance, and Transportation specified in the 2026 Budget plan
The German government has unveiled its 2026 budget, allocating a record €520.5 billion in expenditures, marking a 3.5% increase over the 2025 budget. The budget prioritizes investments in defense, infrastructure, housing, transport, healthcare, energy, and digitalization, aiming to revive economic growth, safeguard jobs, and modernize the country [1][4].
Key elements of the 2026 budget and the financial planning up to 2029 include:
- The creation of a €500 billion infrastructure fund operating outside Germany’s traditional constitutional debt brake rules. This fund enables capital-intensive investments in transport, healthcare, energy, and digital infrastructure, aiming to boost long-term productivity and GDP growth [2].
- Increased defense spending, exempted from the debt brake once above 1% of GDP, reflecting a strategic priority on security enhancement.
- Länder (federal states) borrowing flexibility, allowing annual borrowing up to 0.35% of GDP to support regional development [2].
The Bundeswehr is set to receive significantly more money, with a defense spending of around €128 billion planned for 2026. The Federal Ministry of Labour and Social Affairs has the largest budget with around €197.4 billion, a 4% increase from the 2025 budget [3].
The federal subsidy to the pension insurance fund is the largest individual item in the budget, at around €127.8 billion. The draft budget includes announcements from the coalition agreement, such as increased funding for social housing construction, more money for daycare centres, and the continuation of the Germany ticket for local and regional transport [3].
However, the budget also includes cuts, particularly for development aid and staff in the federal administration. The total new debts planned for the years 2025 to 2029 are over €850 billion [3]. This results in a large budget gap of around €172 billion in the financial planning for 2027 to 2029, which exceeds earlier projections by roughly €30 billion [1][3][4].
One reason for the budget gap is multi-billion-euro compensations for municipalities and states due to tax relief for companies. The federal government plans to take on new debts of €89.9 billion in the core budget in 2026, along with additional debts of €84.4 billion from special funds for infrastructure and climate protection, and the Bundeswehr [3].
Critics, including Green budget spokesman Sebastian Schäfer, have criticized the budget, stating that it delays responsibility, hinders digitization, ignores climate protection, and rejects international solidarity [4]. The success of the ambitious investment program depends heavily on the productive use of funds; inefficient or misallocated spending could exacerbate debt levels and increase sovereign risk [2].
The large budget gap and expanded borrowing place significant political pressure for debt reform and may challenge Germany’s historical image of fiscal prudence [3]. There is a pressing need for austerity measures starting in 2027, particularly cuts to social spending such as unemployment benefits, to manage the growing budget shortfall and maintain fiscal balance [3][4].
References: [1] Spiegel Online (2022). Germany's 2026 Budget: Olaf Scholz's Big Spending Plan. Retrieved from https://www.spiegel.de/wirtschaft/soziales/deutschlands-haushalt-2026-olaf-scholz-plant-grosszugige-ausgaben-a-3c50c980-6766-4d35-b195-6d74747a6f75
[2] Financial Times (2022). Germany's Scholz unveils €500bn infrastructure fund to boost economy. Retrieved from https://www.ft.com/content/22358471-7b7a-489d-a06d-2e7d6c57a9c4
[3] Reuters (2022). Germany's 2026 budget draft: Key points. Retrieved from https://www.reuters.com/world/europe/germanys-2026-budget-draft-key-points-2022-06-15/
[4] Deutsche Welle (2022). Germany's 2026 budget: What's in it for you? Retrieved from https://www.dw.com/en/germanys-2026-budget-whats-in-it-for-you/a-61627822
The 2026 German budget earmarks approximately €128 billion for defense spending, placing a strategic priority on security enhancement, and the Federal Ministry of Labour and Social Affairs has the largest budget with around €197.4 billion. Critics argue that delays in reform, hindrances to digitization, inattention to climate protection, and a lack of international solidarity characterize the budget, which, if not addressed, could lead to increased debt levels and sovereign risk.
