Federal Finance Minister Lars Klingbeil (SPD) and his cabinet colleagues have reached a final agreement on budget savings for the 2027 federal budget. According to reports citing various government officials, the original budget gap of 21 billion euros has been completely closed, meaning the federal budget is set to be approved by the cabinet on July 6th as planned.
However, due to savings not being realized as originally hoped, Klingbeil must utilize a reserve fund amounting to approximately ten billion euros. Furthermore, the Iran war has created unforeseen deficits in the federal budget. Therefore, 9.7 billion euros from the reserve must be allocated for 2027. Originally, the Finance Minister hoped to avoid touching these reserves. Despite this, thanks to reductions, they were also able to slim down the projected budget hole for 2028 from nearly 30 billion euros.
Other ministries have provided their contributions to the planned savings. Education Minister Karin Prien (CDU) is expected to contribute 500 million euros in savings for 2027 through a parental allowance reform. This reform is projected to yield further minimum expenditure savings of two billion euros in the following year. Similarly, Construction Minister Verena Hubertz (SPD) will provide 738 million euros in savings for 2027, though this is slightly below the initial target. The government is also planning to cut subsidies using the “lawnmower method,” targeting a reduction of 15 to 30 percent, which is anticipated to generate three billion euros.
Regarding pensions, Klingbeil has agreed with Labor Minister Bärbel Bas (SPD) on a saving of four billion euros. However, savings goals related to state modernization were not met. Instead of the targeted three billion euros, savings for 2027 will initially only reach one billion euros. Moreover, Klingbeil failed to meet his goal of generating two billion euros through a cryptocurrency tax and increased combating of tax fraud. Conversely, plan-driven revenue sources, such as higher taxes on alcohol and tobacco, and a new sugar tax, are proceeding as scheduled.
