Economic researchers warn, following agreement on the 2027 federal budget that budget negotiations will be more difficult in the years ahead. This is according to a report by Die Welt published on 14 November 2026. The researchers are calling for cuts and have also raised the possibility of a higher rate of VAT. It remains unclear which measures might secure a political majority.
The Budget Committee of the Bundestag had approved the draft 2027 budget on 13 November after an overnight session. Parliament still has to take a final decision on the budget. The agreement in the committee therefore brings an important phase of the discussions to a close, but neither pre-empts the Bundestag’s decision nor resolves the financing questions for the years ahead.
Even before the committee’s final deliberations, it had become clear how limited the scope for manoeuvre was. Union and SPD reached compromises on several contentious proposals. A planned levy on plastic packaging is not to be introduced for the time being. A tax on heavily sweetened drinks has been postponed until the beginning of 2028. The coalition’s intended reduction in the electricity tax for households has not been funded for the time being.
The decisions affect different interests: a lower electricity tax would ease the burden on households but reduce federal revenue. New levies could generate additional funds, but would affect businesses and, depending on how they are designed, consumers too. If planned revenue or savings do not materialise, other spending and financing options will have to be considered.
Longer-term pressures had already been highlighted by the German Council of Economic Experts on 11 November, in its report on the overall economic situation. It estimates that substantial financing gaps could emerge in the federal budget by 2040. According to the analysis, their scale depends, among other things, on how quickly borrowing to fund defence spending is reduced. This is a model calculation, not a confirmed shortfall.
The German Council of Economic Experts recommended limiting the growth in spending, cutting subsidies and reforming social security systems At the same time, it expected economic output to be significantly stronger in 2026 and 2027. In its assessment, however, the improved economic outlook does little to change the medium-term budget problems.
The task facing the federal government is to reconcile ongoing commitments and new policy objectives with available revenue and the rules on borrowing. Cuts, tax changes and social security reforms distribute the burden in different ways and are therefore politically contentious. The economists’ warnings describe risks and possible courses of action; they are not a prediction that specific cuts or tax increases will be approved.
Editor: Phillipe Schmidt-Araguin (Article created with AI assistance).