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By Maria Martinez
BERLIN, July 6 (Reuters) - Germany’s cabinet approved the first draft of the 2027 budget on Monday, ramping up investment and defence spending to shield its sluggish economy from war-related energy shocks and years of underinvestment.
The 2027 draft budget, part of a medium-term financial framework extending to 2030, allocates total spending of €555.4 billion ($634.16 billion), with total borrowing amounting to €203.6 billion, confirming a Reuters report from Friday.
"We want Germany to be a strong and crisis-resilient country," German Finance Minister Lars Klingbeil said. "That is why the priorities in the 2027 budget are clear: We want to put our country back on a growth path and create the jobs of the future in Germany."
From 2027 to 2030 Germany plans to borrow a total of €838.2 billion, thanks to the special fund for infrastructure approved last year and an easing of borrowing rules to allow greater defence spending.
"We are investing in future viability and innovative strength, as well as in security and resilience," Klingbeil said.
As a result of high levels of debt, interest payments are set to almost double by 2030, from €41.9 billion in 2027 to €80.7 billion.
Industry association BDI and the German Mittelstand association DMB criticised the high level of borrowing.
"By 2030, nearly one in five euros of tax revenue could be tied up in interest payments," said BDI chief executive Tanja Goenner.
New borrowing in 2027 includes €118.7 billion in the core budget, €54.9 billion via the infrastructure fund and €30 billion from a special defence fund.
Total investment will rise to €117.5 billion in 2027 from €78.9 billion in 2025 under the previous government, helped by a €500 billion infrastructure fund and looser borrowing rules for defence.
FOCUS ON DEFENCE
Core defence spending will rise to €109 billion in 2027 from €82.2 billion in 2026. The total reaches €130.1 billion including support for Ukraine and other security spending.
"We cannot defend Germany against Putin with a balanced-budget policy," Klingbeil said. "We must make up, in the shortest possible time, for three decades in which no investment was made in our defence capability."
Thanks to last year’s reform of the so-called "debt brake" which excludes defence spending from the borrowing cap, Germany will commit a total of €783.8 billion to defence-related expenditure between 2026 and 2030.
Germany has earmarked €11.6 billion for Ukraine in 2027 and €8.5 billion annually from 2028 to 2030.
The finance ministry expects defence spending to rise from 2.8% of GDP in 2026 to 3.5% in 2029.
’WE’RE PUTTING THE BUDGET IN ORDER’
Despite the difficult economic situation, it has been possible to make significant progress on fiscal consolidation and to fully eliminate the €34 billion shortfall for 2027, the minister said.
For that, the government plans to raise taxes on alcohol and cut social benefits, according to the budget draft seen by Reuters. The draft also calls for cuts to pension subsidies.
"We are putting the budget in order," Klingbeil said. "That is my duty as finance minister."
The need for cuts in 2028 has been reduced in the financial plan to around €22 billion. Nevertheless, there is still a funding gap of around €109 billion for the years from 2028 onwards.
Following cabinet approval, discussions on the draft budget will commence in parliament in September, with final approval anticipated by year-end.
($1 = 0.8758 euros)
