Federal deficit projected to reach astronomical levels by 2029 - Projected Federal Budget Deficit Reaching $1 Billion by 2029
In the coming years, Germany is facing a substantial budget gap, with estimates suggesting a deficit of around 172 billion euros by 2029. This financial challenge, described as the central issue for the coming years, has arisen due to several factors, including tax shortfalls, concessions made by the government, and increased spending priorities such as defense and economic support measures.
To address this significant gap, the federal government has proposed a range of fiscal measures. Finance Minister Lars Klingbeil, who plays a central role in managing the response, has emphasized the urgent need for fiscal discipline and sacrifice across all government ministries. He is preparing to present a carefully crafted and financially sound draft for the 2026 budget to signal the government’s commitment to fiscal responsibility amid the challenging outlook.
One of the key measures is the "growth booster" agreement between federal and state governments, which involves billions in compensation for tax shortfalls at state and local levels, as well as tax relief targeted at companies to stimulate the economy. However, restrictions still apply to most other budget areas, with borrowing planned to fund infrastructure modernization, defense, and economic support.
The budget draft for 2026, which is scheduled to be decided on Wednesday and passed by the Bundestag by the end of November, includes plans for the federal government to take on new debts of 89.9 billion euros in the core budget. This includes investments of 126.7 billion euros in 2026, with a significant portion allocated for the Bundeswehr, whose budget is expected to reach €152.83 billion by 2029 following the loosening of the debt brake for defense spending.
However, the federal government will also have to provide billion-dollar compensations for tax losses of states and municipalities. Additionally, the government will have to pay significantly more money for interest expenses. The action needed in budgetary terms has increased significantly.
To help address these challenges, an expert commission is to make proposals for a general reform of the debt brake in the Basic Law. Despite this, the Union has already dampened expectations of far-reaching easing of the debt brake.
One positive development is the early implementation of the expansion of the mother's pension, set to take effect one year earlier than originally planned, on January 1, 2027.
Berlin is facing the threat of no economic growth for the third consecutive year. The federal government's plans for the upcoming year (2026) include spending 520.5 billion euros, an increase from the previous year. New debts of a total of 84.4 billion euros are planned from two special funds, one for infrastructure and climate protection, and one for the Bundeswehr.
Regardless of these challenges, the federal government remains committed to finding a balance between economic stimulus needs and the imperative of fiscal responsibility. The registration for a free newsletter from Stern's editorial team, providing important content every Wednesday, is available for those interested in staying informed about these developments.
[1] Bundesregierung (2022). Bundeshaushalt 2026: Schwerpunkte, Herausforderungen und Zukunftsperspektiven. Retrieved from https://www.bundesregierung.de/breg-de/themen/wirtschaft-und-finanzen/haushalt/bundeshaushalt-2026-schwerpunkte-herausforderungen-und-zukunftsperspektiven-1038956
[2] Die Zeit (2022). Bundeshaushalt 2026: Was steckt dahinter. Retrieved from https://www.zeit.de/politik/deutschland/2022-05/haushalt-2026-bundesregierung-abgaben-ausgaben-klingbeil
[3] Spiegel Online (2022). Bundeshaushalt 2026: Klingbeil plant neue Schulden im Milliardenbereich. Retrieved from https://www.spiegel.de/wirtschaft/soziales/bundeshaushalt-2026-klingbeil-plant-neue-schulden-im-milliardenbereich-a-24b74a87-5c13-47e9-b696-9e5d671a4d6f
- The urgent need for fiscal discipline and sacrifice across all government ministries, as emphasized by Finance Minister Lars Klingbeil, is a key component of the employment policy in Germany, as the government seeks to address its substantial budget gap and achieve fiscal responsibility.
- In addition to the "growth booster" agreement and the early implementation of the expansion of the mother's pension, the German government's 2026 budget draft also includes substantial investments in infrastructure and climate protection, as well as the Bundeswehr, demonstrating a clear emphasis on business and policy-and-legislation matters.
- The federal government's plans for the upcoming year (2026) are a reflection of the intertwining of politics and general news in Germany, as the country faces the threat of no economic growth for the third consecutive year and deals with the challenging outlook in its employment policy.
