The federal cabinet today adopted the government draft for the 2026 federal budget and the fiscal plan to 2029. Less than three months after taking office, the German government has already adopted two budgets, for 2025 and 2026.
German Finance Minister and Vice-Chancellor Lars Klingbeil stated: “We’re focusing on growth and fairness. Our top priority is to safeguard jobs and pave the way towards renewed economic strength. We’re investing in the future today, in order to make our country fairer, safer and more innovative tomorrow. We want to create the conditions to facilitate new jobs, fair wages and affordable housing. We’re investing billions to ensure that children receive a good education, to improve the balance between family and work life, and to provide reliable bus and train service, including in rural areas.
We’re carrying out structural reforms to boost the competitiveness of our economy. And we’re providing relief to a great number of people in our country, for example by raising the commuter allowance, continuing the Deutschlandticket, reducing energy prices and ensuring reliable health care and stable pensions.
We’re handing taxpayers’ money conscientiously. In the coming years, we will be pursuing a strategy of strict budget consolidation. We have to put together a comprehensive consolidation package that encompasses all government ministries. Everyone in government will have to cut costs. This is a tremendous challenge. At the same time, we’re boosting government revenue by closing gaps and loopholes. To this end, I’ve made the fight against tax fraud and financial crime one of my leading priorities.”
The government has set three primary fiscal policy priorities in order to boost growth and enhance fairness in Germany.
- Investments to boost growth, safeguard jobs, modernise the country, and enhance external and internal security
- Structural reforms to increase competitiveness and ease the burden on individuals and businesses
- Budget consolidation
The benchmark figures adopted by the federal cabinet on 24 June 2025 form the basis for the government draft of the 2026 federal budget and the fiscal plan to 2029. There are some key divergences between the benchmark figures on the one hand and the draft budget and fiscal plan on the other. These are the result of factors such as: reduced federal revenue projections due to payments that the federation will make to the Länder and local authorities in order to compensate for the effects of the government’s new “growth booster”; new specifications for pensions granted to mothers with children born before 1992; and recalculations of interest payments.
Key figures contained in the draft 2026 federal budget and the fiscal plan to 2029 include the following:
| 2nd government draft 2025 | Government draft 2026 | Fiscal plan | |||
| 2027 | 2028 | 2029 | |||
| in € billion | |||||
Expenditure | 503.0 | 520.5 | 507.5 | 546.4 | 572.1 |
|---|---|---|---|---|---|
Year-on-year change in % | +6.1 | +3.5 | -2.5 | +7.7 | +4.7 |
Total revenue | 503.0 | 520.5 | 507.5 | 546.4 | 572.1 |
Tax revenue | 386.8 | 383.8 | 400.6 | 412.3 | 423.9 |
Net borrowing | 81.8 | 89.9 | 88.1 | 116.5 | 126.9 |
Net borrowing excluding exempted budget areas | 49.7 | 35.6 | 24.0 | 9.4 | 4.8 |
Adjusted investment ratio in the core budget (in %)1 | 10.0 | 10.4 | 10.6 | 10.6 | 10.0 |
| 1 Investment expenditure excluding financial transactions as a percentage of federal budget expenditure excluding (a) financial transactions and (b) expenditure from exempted areas exceeding 1% of GDP in the year preceding the year in which the budget was prepared. | |||||
| Any discrepancies are due to rounding. | |||||
Investment
Government investment in 2026 will hit record levels for the second consecutive year. Investment in 2026 will increase by over €10 billion on the year to €126.7 billion. To make Germany fit for the future, the government is placing a particular priority on investments in transport infrastructure, education and childcare, housing construction, hospitals, digital technology, climate action, and internal and external security.
€56.1 billion of the total investment amount will be drawn from the core budget. The investment ratio in accordance with Article 143h of the German constitution will rise to over 10%. The principle of additionality will be applied in 2026 and throughout the entire fiscal planning period. €48.9 billion of the total investment amount will be drawn from the Special Fund for Infrastructure and Climate Neutrality, and €21.7 billion will be drawn from the Climate and Transformation Fund. Throughout the entire fiscal planning period to 2029, investment levels will remain stable at a high level of roughly €120 billion per year.
| Federal investment | 2025 | 2026 | 2027 | 2028 | 2029 |
| 2nd government draft | Government draft | Fiscal plan1 | |||
| in € billion | |||||
Federal government (total) | 115.7 | 126.7 | 117.4 | 118.6 | 119.5 |
|---|---|---|---|---|---|
| 62.7 | 56.1 | 48.6 | 46.9 | 46.5 |
| 27.2 | 48.9 | 47.1 | 48.4 | 49.2 |
| 25.7 | 21.7 | 21.7 | 23.4 | 23.8 |
Investments will be targeted towards the following areas in particular:
Transport infrastructure
Transport spending was restructured in the second government draft of the 2025 federal budget. In addition to investment funding from the core budget, significant funding will now also be made available from the Special Fund for Infrastructure and Climate Neutrality. In 2026, a total of €33.7 billion will be earmarked for the purpose of modernising Germany’s transport infrastructure. Investment in transport infrastructure will total €166 billion in the four years up to 2029.
Housing construction
In order to increase the availability of affordable housing, total funding for social housing construction will be raised to €4 billion in 2026. This is an increase of €500 million over the original fiscal plan. In addition, the 2026 draft federal budget includes €2.265 billion in funding for housing benefit, and €220 million for home ownership savings premiums. The budget for urban development programmes will be raised to €1 billion – a major increase of €210 million over the original fiscal plan. All of these measures aim to make more housing available to low-income households.
Research and development
The draft 2026 budget also includes €17.1 billion in funding for research and development in Germany. This includes research to help people who have severe and/or rare diseases that lack effective treatment options. In addition, by taking targeted measures to intensify AI research and to convert research findings into practical applications, the government’s Artificial Intelligence Initiative aims to boost the economy’s competitiveness, facilitate the creation of new business models, and spur the formation of new businesses in Germany. Funding from the Global Minds Initiative Germany – a programme that aims to attract international scientists and researchers to Germany – will also give an important boost to home-grown research.
Education and childcare
The German government places a high priority on improving education and childcare in Germany. The Federation will continue to provide the Länder with significant financial resources for this purpose. For example, for the second consecutive year, the Federation will allocate nearly €2 billion in additional VAT revenue to the Länder in 2026 in order to support the process of improving child daycare quality nationwide. In addition, nearly €1 billion in annual funding from the Special Fund for Infrastructure and Climate Neutrality is earmarked for the expansion of childcare. The Federation will also contribute €2.25 billion from the Special Fund to support the Digital Pact for Schools 2.0. A total of €250 million will be allocated to the “Digital Teaching and Learning” programme.
Internal and external security
The German government will continue to make massive investments in internal and external security. The planned increases encompass financial resources as well as staffing. In 2026, the Federal Police will add 1,000 police officers to its ranks.
Total defence spending is slated to rise to about €82.7 billion in 2026. This is about €29.4 more than the amount specified in the previous fiscal plan. The number of soldiers in the German armed forces is expected to increase by up to 10,000 in 2026.
NATO defence spending will rise to 2.8% of GDP in 2026, and is set to climb to 3.5% of GDP in 2029 in accordance with the fiscal plan. Germany is firmly committed to the NATO alliance and to a strong European Security and Defence Policy.
Support for Ukraine – both military and civilian – is also secured in future budgets. Roughly €9 billion per year has been earmarked for measures to enhance the security of partner countries and countries that are attacked in violation of international law. Germany continues to stand firmly at Ukraine’s side.
The Special Fund for Infrastructure and Climate Neutrality is playing a major role in Germany’s investment drive.
| Planned spending from the Special Fund for Infrastructure and Climate Neutrality* | 2025 | 2026 | 2027 | 2028 | 2029 |
| in € billion | |||||
Transport infrastructure | 11.7 | 21.3 | 20.2 | 20.3 | 19.8 |
|---|---|---|---|---|---|
Hospital infrastructure | 1.5 | 6.0 | 3.5 | 3.5 | 3.5 |
Energy infrastructure | 0.9 | 2.1 | 2.8 | 3.2 | 3.0 |
Education and childcare infrastructure | 0.0 | 1.2 | 1.4 | 1.4 | 1.5 |
Research and development | 0.5 | 1.0 | 1.5 | 2.1 | 3.4 |
Digitalisation | 4.0 | 8.5 | 8.6 | 8.6 | 8.5 |
Housing construction | 0.3 | 0.5 | 0.7 | 1.0 | 1.2 |
Federal component (total) | 18.9 | 40.5 | 38.8 | 40.1 | 40.8 |
Allocations to the Länder and local authorities | 8.3 | 8.3 | 8.3 | 8.3 | 8.3 |
Allocations to the Climate and Transformation Fund | 10 | 10 | 10 | 10 | 10 |
Total expenditure | 37.2 | 58.9 | 57.1 | 58.4 | 59.2 |
| *Any discrepancies are due to rounding. | |||||
Relief measures
In addition to providing for massive increases in investment, the 2026 federal budget contains a wide range of relief measures for citizens. For example:
- The Deutschlandticket will be retained, in order to ensure that millions of people can continue to enjoy easy and affordable public transport.
- A total of €7.6 billion will be allocated in 2026 (a) for loans to social security funds and (b) to pay for the statutory health insurance system’s share of financing for the Hospital Transformation Fund (this share will now be covered by the Special Fund for Infrastructure and Climate Neutrality). In particular, this will stabilise the cost of contributions to statutory health and long-term care insurance.
- The commuter tax allowance will be increased to 38 cents per kilometre, thereby ensuring greater equity between urban and rural areas.
- Reduced VAT rate for the restaurant and catering sector: this fulfils a commitment made in the government’s coalition agreement and also contributes to price stability.
- Energy price reductions: reduced grid fees, elimination of the gas storage surcharge, and reduced electricity duty for the manufacturing sector.
Structural reforms
The German government is carrying out structural reforms that will add further momentum to the economy by fuelling growth and safeguarding jobs.
The government has enacted a wide range of measures in less than three months since taking office. These include the “growth booster”, which implements a set of immediate corporate tax measures specified in the coalition agreement. The Federation is also providing local authorities with full compensation for the tax revenue shortfalls caused by the growth booster (total estimated relief: roughly €13.5 billion by 2029).
The government has also adopted a programme to turbocharge housing construction.
The commission on debt brake reform and the commission on long-term care insurance reform have commenced their work and will present their initial findings soon. Commissions on statutory health insurance reform and pension insurance reform are also being set up.
To better tap Germany’s workforce potential, the government will allocate an additional €1 billion per year starting in 2026 for measures to integrate more people into the labour market. In addition, the planned “active pension” programme will offer people incentives to continue working after they have retired.
Budget consolidation
In the coming years, the German government will embark on a strategy of strict budget consolidation. The draft 2026 federal budget launches a process of structural consolidation, for example in the areas of public administration staffing and spending.
All government ministries will have to set clear priorities for future budgets. More than ever, public authorities will be required to exercise strict fiscal discipline and ensure the efficient and effective use of limited financial resources. The consolidation process will also include (a) a comprehensive critical review of government functions and (b) the consistent use of performance budgeting. New projects will be contingent upon the availability of funding. The new commissions announced in the coalition agreement – especially the commissions on social security reform – will play a key role in this respect.
At the same time, the German government will boost state revenue by taking resolute action to fight tax fraud and financial crime. Finance Minister Klingbeil has made this issue one of his top priorities and will introduce related legislative proposals in the near future.
One thing is clear, however: the main focus is on boosting growth. For this reason, the German government is pursuing a consistent strategy of investment and reform to modernise Germany and create the conditions for long-term higher growth. This in turn will safeguard and increase government revenue.