Federal budget 2026: Budget discussions and defense spending during the summer break

What is currently happening with the 2026 federal budget?

Despite the parliamentary summer recess, the Budget Committee of the German Bundestag is working intensively on preparing the second reading of the Act on the Determination of the Federal Budget for the 2026 Fiscal Year and on the Federal Financial Plan until 2029. The start of the second reading is scheduled for mid-September 2025, which means a tight schedule for the parliamentarians.

The first important meetings of the Budget Committee to work on the budget bill took place on July 30 and 31, 2025. This unusual activity during the summer recess underscores the urgency and complexity of the upcoming budget deliberations.

Which individual plans were on the agenda of the July meetings?

The Budget Committee meetings on July 30 and 31 included several important individual budget items. The individual budget items discussed included the individual budget items for the Federal Council (Item 3), the Federal Constitutional Court (Item 19), the Federal Court of Auditors (Item 20), and the Federal Commissioner for Data Protection and Freedom of Information (Item 21).

By far the most significant item, however, was Budget Item 14 for the Federal Ministry of Defense, which has been described as the "biggest chunk." This budget item was already discussed on July 30, with Defense Minister Boris Pistorius personally participating in the debate and defending the budget.

What are the dimensions of the 2026 federal budget?

On July 30, 2025, the Federal Cabinet approved the government's draft budget for 2026. The draft provides for total expenditures of €520.5 billion, an increase of 3.5 percent over the budget planned for 2025. This sum clearly demonstrates the enormous financial resources the federal government will be deploying in the coming year.

Net borrowing in the core budget is expected to amount to EUR 89.9 billion, compared to EUR 81.8 billion in 2025. In addition, new debt from the two special funds amounting to EUR 84.4 billion will be added, bringing total new debt to EUR 174.3 billion.

What are the investment priorities for 2026?

The 2026 federal budget provides for record investments totaling €126.7 billion. These investments are spread across various areas: €56.1 billion come from the core budget, another €48.9 billion from the Infrastructure and Climate Neutrality Special Fund, and €21.7 billion from the Climate and Transformation Fund.

A particular focus is on transport infrastructure, with planned spending of €33.7 billion for 2026. €4 billion is earmarked for social housing, representing an increase of €500 million over the previous budget. Research and development will receive €17.1 billion, and €16 billion is planned for internal security, representing an increase of €800 million.

How is the defense budget developing?

The defense budget is experiencing a dramatic increase. Budget 14 for the Federal Ministry of Defense is slated to increase from €62.4 billion in 2025 to €82.7 billion in 2026. This represents an increase of approximately 32 percent, making the defense budget the second-largest budget after the social welfare budget.

In addition to the €82.7 billion from the regular budget, an additional €25.5 billion is available from the Bundeswehr Special Fund. This means that the Bundeswehr will have more than €108 billion available for personnel, equipment, and infrastructure in 2026.

What staff increases are planned?

The Bundeswehr's personnel plans provide for a significant increase. 10,000 additional military posts and 2,000 additional civilian posts are planned for 2026. This will increase the personnel budget for the Ministry of Defense's portfolio to a total of 202,483 military posts and approximately 77,899 civilian posts.

In addition, with the implementation of the draft legislation on the New Military Service, 20,000 temporary military positions will be created. Defense Minister Pistorius emphasized that only with as many dedicated people as possible and state-of-the-art technology can military strength and operational readiness be achieved.

What are the special €25 million templates for logistics trucks?

Unexpectedly, two significant €25 million proposals are on the Budget Committee's agenda. These proposals concern the procurement of logistics trucks under existing framework agreements, which allows for rapid implementation.

The initial order includes 933 unprotected and 30 protected swap body systems in the 15-ton payload class, along with the associated 400 swap body platforms and 1,000 tarpaulin/bumper bodies. These vehicles are crucial for the logistical supply of troops, as they enable the transport of supplies without additional handling equipment such as cranes or forklifts.

The second proposal concerns 425 unprotected transport vehicles (UTF) in the military payload classes of 3.5 tonnes and 15 tonnes. These vehicles will be procured in 4×4 and 8×8 wheel configurations and will contribute significantly to the capabilities of the Bundeswehr's logistics units and formations.

How do the swap loader systems work?

Swap body systems (WLS) are highly mobile transport vehicles that enable particularly efficient logistics. The vehicle can simply unload the swap body with the container or palletized supplies on it and is then immediately ready to pick up another swap body with its load. This speeds up material handling and increases the efficiency and sustainability of the supply chain.

All new swap body systems will be equipped with the ROSY (Rapid Obscuring System) smoke grenade system. The armored versions feature armored cabs with small side windows, yet still allow for high mobility in difficult terrain. Despite the protective equipment, the swap body platform can carry a payload of up to 14 tons.

What framework agreements exist for these purchases?

The Bundeswehr has extensive framework agreements with industry that allow for flexible call-offs. In June 2020, a framework agreement was signed with Rheinmetall MAN Military Vehicles for the delivery of up to 4,000 trucks with swap-body systems, valid until 2027. In addition, a framework agreement has been in place since July 2024 that allows for call-offs of up to 6,500 unprotected transport vehicles valued at up to €3.5 billion within seven years.

These framework agreements offer the advantage of allowing for flexible orders for large quantities and have thus become flagship projects in military procurement. Since 2017, over 7,000 HX vehicles (including swap bodies and tractor units) have been delivered to the German Armed Forces.

Why is procurement during the summer break so important?

The procurement during the summer break underscores the high priority given to the modernization of the Bundeswehr. The Bundeswehr's refocusing on national and alliance defense is creating a significant need for protected and unprotected mobility for the troops. The procurement process requires rapid pace, which is why the new transport vehicles are scheduled to be delivered to the troops by 2025.

The financial volume of the calls for assistance is in the high three-digit million range and will be financed from the 2025 defense budget and the Bundeswehr special fund. The share from Departmental Plan 14 is included accordingly in the second government draft of the 2025 federal budget and is to be fully implemented in 2025.

The hub for security and defense offers well-founded advice and current information in order to effectively support companies and organizations in strengthening their role in European security and defense policy. In close connection to the SME Connect working group, he promotes small and medium -sized companies (SMEs) in particular that want to further expand their innovative strength and competitiveness in the field of defense. As a central point of contact, the hub creates a decisive bridge between SME and European defense strategy.

Suitable for:

• The Working Group Defense of the SME Connect – Strengthening SMEs in European defense

What is the further schedule for the budget discussions?

After the summer sessions, budget deliberations will resume intensively. Committee deliberations are scheduled for the weeks beginning August 25. On August 25, the Budget Committee will hold a public hearing on the 2025 Budget Accompanying Act and the draft bill establishing the Special Fund for Infrastructure and Climate Neutrality.

The Budget Committee's decisive reconciliation meeting is scheduled for September 4, 2025. At this meeting, the final and most contentious issues will be clarified and the final version of the 2025 budget recommended by the Budget Committee will be determined. This will be followed by the second and third readings in the Bundestag from September 15 to 18, 2025.

What happens to the 2026 budget law?

Parallel to the deliberations on the 2025 budget, preparations for the 2026 budget are already underway. The first reading of the 2026 federal budget is scheduled for the week of September 23-26, 2025. This is two weeks later than in normal years, when the first week of parliamentary session after the summer recess is traditionally the budget week for the first reading of the next year's budget.

The Bundestag is scheduled to vote on the 2026 budget at the end of November 2025. The Bundesrat must still cast its vote in December before the bill is sent to the Federal President for signature.

What financing problems exist in the medium term?

Despite the high expenditures and massive new debt, there is a huge gap in the medium-term financial planning. For the years 2027 to 2029, there is a financing gap of approximately 172 billion euros. This gap is even larger than originally assumed – previously, 144 billion euros had been assumed.

The reasons for this funding gap are manifold: reduced federal revenues due to the relief granted to states and municipalities to offset the growth boost, the clarification of the Mütterrente III (mother's pension) scheme, and a recalculation of interest expenditures. Federal Finance Minister Klingbeil therefore announced a "strict consolidation course" for the coming years and emphasized that everyone in the government must cut costs.

How are the special funds used?

Germany maintains several significant special funds managed outside the regular federal budget. The Infrastructure and Climate Neutrality Special Fund (SVIK) comprises up to €500 billion and is expected to enable spending of €58.9 billion in 2026. This special fund creates a long-term financing basis for investments in Germany's modernization.

The €100 billion special fund for the Bundeswehr is expected to provide spending of €25.5 billion in 2026. Both special funds are financed exclusively through loans. The Bundeswehr special fund is expected to be exhausted in 2028, which is why the debt brake on defense spending has been relaxed.

What role does the sector exception play for defense spending?

The amendment to the Basic Law created an exception for defense spending above one percent of gross domestic product. This provision allows defense spending exceeding one percent of GDP to be financed through debt without these loans being counted toward the borrowing capacity of the normal debt brake.

According to the Federal Ministry of Finance, €97.4 billion will fall under the sectoral exemption in 2026. Subtracting one percent of the nominal GDP of the year preceding the budget preparation, amounting to €43.1 billion, results in disregardable borrowing of €54.3 billion. This demonstrates the significant financial volume made possible by this exemption.

What does this mean for NATO's goal?

The German government plans to increase the NATO quota to 3.5 percent of gross domestic product by 2029. This is an ambitious goal that requires significant financial effort. The key figures for the coming years stipulate that budget line item 14 will increase to €82.69 billion in 2026, €93.35 billion in 2027, €136.48 billion in 2028, and €152.83 billion in 2029.

Germany is thus reaffirming its responsibility within NATO and a strong European security and defense policy. Defense Minister Pistorius emphasized that Germany is sending a clear message to its allies: "You can rely on Germany."

What relief is planned for citizens?

In addition to the massive investments, the 2026 draft budget also provides for relief for citizens. The commuter allowance is to be increased to 38 cents per kilometer to create greater equity between urban and rural areas. The Germany Ticket will be continued, providing easy and affordable mobility for millions of citizens.

A VAT reduction from 19 to 7 percent is planned for the restaurant industry, which is intended to contribute to price stabilization. Energy prices are to be eased through a reduction in network charges, the abolition of the gas storage surcharge, and a reduction in electricity tax for the manufacturing sector. Nearly €10 billion is planned for the coming year to reduce energy costs for citizens and businesses.

How will Ukraine continue to be supported?

Germany remains firmly on Ukraine's side, as the draft budget makes clear. Approximately €8.5 billion in military aid is earmarked for Ukraine in 2026. These funds are located in budget line item 60 for general financial management. Support for Ukraine, both military and civilian, will also be ensured in future budgets.

The continued support for Ukraine underscores the German government's stance against Russian aggression and the defense of the European peace order. These expenditures are part of the broader security policy orientation reflected in the overall defense budget.

What are the political reactions to the draft budget?

As expected, reactions to the 2026 draft budget are mixed. The coalition government praised the growth stimulus and the massive investments. Federal Finance Minister Klingbeil described the budget as a "milestone in ensuring more growth and equity in our country at record speed."

The opposition, however, warns against naivety and rising prices. Critics speak of the "principle of hope" and a "big gamble" in view of the high debt and financing gaps in the coming years. The Taxpayers' Association warns the government against taking on massive debt.

The budget deliberations in the coming months will reveal what changes parliamentarians will make to the government's draft. What is certain is that MPs will make further modifications before the budget is adopted at the end of November 2025.

I would be happy to serve as your personal advisor.

Head of Business Development

Chairman SME Connect Defense Working Group

LinkedIn

 

 

I would be happy to serve as your personal advisor.

contact me under Wolfenstein ∂ Xpert.digital

call me under +49 89 674 804 (Munich)

LinkedIn