German cabinet approves 2027 budget raising defense spending while cutting housing benefits

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German cabinet approves 2027 budget raising defense spending while cutting housing benefits
Germanys government taps emergency reserves and social funds to close 34 billion 2027 budget hole
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The German government has approved a 2027 budget draft that sharply increases defense spending while cutting social benefits, including a controversial reduction in housing allowances that will affect over a million households. The cabinet, led by Finance Minister Lars Klingbeil (SPD), finalized the €450 billion budget plan on Monday, prioritizing a 33% boost to military funding while trimming welfare programs to meet fiscal targets.
Defense spending will rise to €109.7 billion next year, more than doubling since 2023 and marking the first time Germany allocates over €100 billion annually to its armed forces. The increase fulfills NATO’s 2% GDP defense target six years ahead of schedule, positioning Chancellor Friedrich Merz to present the figures at this week’s alliance summit in Ankara. "This isn’t about pleasing allies—it’s about securing our own future," a government spokesperson stated, though critics argue the hike risks crowding out other priorities.
The budget’s most contentious measure is a €1.5 billion cut to housing benefits (Wohngeld), with reductions escalating to €2 billion annually by 2028. Housing Minister Verena Hubertz (SPD) confirmed the changes will take effect January 1, 2027, freezing benefit adjustments for inflation and halving heating cost components. "Existing recipients won’t see immediate cuts, but new applicants will face stricter eligibility and lower payments," Hubertz told reporters. The reform will remove support entirely for households earning 50–60% above current thresholds, pushing some recipients into basic social security—a move that could shift costs to municipalities already struggling with rising housing expenses.
To offset the shortfall, the government plans new revenue streams: a plastic tax (€1 billion), higher levies on tobacco (€800 million), alcohol (€400 million), and cryptocurrencies (€1 billion), alongside digitalization savings (€1.2 billion). Yet even these measures leave a €20 billion "action gap" in the draft, which Klingbeil filled with deferred cuts to health insurance subsidies (€1.8 billion) and pensions (€3 billion). "The numbers don’t add up without creative accounting," warned Left Party leader Janine Wissler, highlighting how defense hikes and welfare cuts clash with long-term fiscal sustainability.
The budget also faces legal challenges. A coalition agreement clause banning state-level expropriations of private rental housing has drawn criticism as unconstitutional, while environmental groups decry a €1 billion reduction in the climate fund. Meanwhile, Spain’s government approved a record €170 billion transfer to regional administrations for 2027, allowing deficits up to 0.1% of GDP—a stark contrast to Germany’s austerity push.
With the draft now in the Bundestag’s hands, lawmakers must reconcile competing demands: NATO commitments, social stability, and debt reduction. The outcome will shape Germany’s economic trajectory—and its role in Europe—for years to come.
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