Economic experts on the budget for 2027: finance the military with taxes

Economists warn that the current high level of national debt will not last forever. They advise the government to limit borrowing for defense soon, save money on pensions and, if necessary, increase taxes.

The Economic Advisory Council sees a “need for action of historic proportions” in the federal budget. The two male and three male professors presented their new report on Wednesday. Meanwhile, the Union and SPD in the Bundestag negotiated the federal budget for 2027, almost a third of which will be financed by new debt.

Economists see the high, credit-financed military spending in particular as a long-term problem. In 2027 this should amount to around 150 billion euros, two thirds from additional debt. The coalition of the Union and the SPD introduced the so-called area exception in 2025 as a way around the debt brake in the Basic Law: Defense costs that exceed 1 percent of economic output may be covered with loans.

So that the interest on this debt does not blow up the federal budget in ten years, the economists are now suggesting: The coalition should decide during this election period that from 2031 onwards an additional quarter of a percent of the excess military spending should be financed from the normal budget, i.e. with tax revenue. “The gradual reduction of loan financing should be anchored in the constitution,” said Monika Schnitzer, the chairwoman of the experts.

The result: There would be an increasing financing gap in the federal budget in the future of 100 to 200 billion euros per year, which future government coalitions would have to close somehow. Economists also make suggestions for this. For example, “financial aid” and “environmentally harmful tax breaks” could be cut. One possibility would be the abolition of tax advantages for diesel fuel and aviation fuel. Such items would bring total annual savings of 17 billion euros or more.

The experts also advocate savings in pension insurance. They speak out against the expensive mother's pension III, which the CSU would like to have. And they explain that the so-called holding line for pension levels is becoming too expensive. If they are given up, pensioners will receive less old-age security in the long run compared to their working wages. Finally, economists are also considering tax increases. Specifically, they mention the “reduction of tax privileges when selling real estate”. Higher marginal income tax rates are also on the list.

Schnitzer emphasized that the spending cuts should be “distributed fairly between generations and groups.” Unfortunately, the experts admit that they are still not enough to close the remaining large gaps in future budgets - assuming that the Bundeswehr continues to receive as much money as it currently does. This conclusion therefore seems obvious: the need for money could not be reconciled with the current debt brake in the Basic Law. It would have to be relaxed. However, the current coalition cannot agree on this.

The Council of Economic Experts describes the economic situation in the near future as follows: This year the German economy will grow by 1.3 percent, and in 2027 it will probably grow by 1 percent. Unemployment is falling slightly to 6.3 percent, while inflation is rising from 2.8 percent this year to 3.3 percent next year.