Preparations for the 2027 federal budget are already in full swing, significantly ahead of the official start in January, signaling a period of intense fiscal pressure for the German government. Since September, state secretaries responsible for departmental budgets have met repeatedly, driven by a mandate from Finance Minister Lars Klingbeil (SPD) to achieve a stringent savings target of one percent of spending, roughly equivalent to €5 billion.
According to sources within the Federal Ministry of Finance (BMF), only approximately half of the relevant ministries have currently submitted their proposed budgetary contributions. These include key departments such as the Ministry of the Interior, the Ministry of Labor and Social Affairs and the BMF itself. The Ministry of Labor’s proposed savings alone, nearing €2 billion, represent a substantial portion of the anticipated cuts. Notably, ministries responsible for crucial areas like transport, justice and economic cooperation have yet to deliver their contributions. Klingbeil aims to collect all submissions by the year’s end, a move intended to cover roughly half of an estimated €11 billion financing gap. The size of this gap has shrunk recently, largely due to a decision to postpone the use of a previously earmarked €10 billion reserve into 2028. Improved tax revenues and a delayed implementation of the “mothers’ pension” scheme have also contributed to this reduction.
However, the situation isn’s encouraging. Klingbeil has already urged his cabinet colleagues to devise further proposals for austerity measures, extending beyond just 2027. Projections from the BMF indicate a daunting €60 billion shortfall for 2028, escalating to €64 billion for 2029. To address this looming crisis, ministries are being pressured to present plans involving the elimination of subsidies and reductions in legally mandated benefits, with a particular focus on programs related to pension, health and long-term care insurance.
Should ministries fail to provide adequate proposals, Klingbeil has signaled his intention to task BMF officials to generate their own suggested cutbacks, demonstrating the government’s resolve to fulfill its savings targets. Despite the accelerated timeline, the traditional budget process, beginning with the circular for budget preparation in January, will proceed. Departing from standard procedure, the key parameters of the 2027 budget will now be delivered in April, not March, with the government draft expected to be approved by the Federal Cabinet by the end of June or early July next year. This rapid acceleration of the budget process hints at a protracted and potentially contentious period of austerity measures and political maneuvering within the German government.
