Big defence spending and new taxes: German cabinet approves budget
The plans, which still need to be approved by parliament, envisage Europe's biggest economy spending more than projected just a few months ago and also taking on greater debt.
The 2027 defence budget rises by 33 percent from 2026, to almost €110 billion, as Germany pushes ahead with a rearmament drive that began after Russia's invasion of Ukraine.
But green groups have criticised plans to transfer billions of euros from a special climate fund to the regular budget. There has also been unease at a six-percent reduction in the budget for the development department, which disburses aid.
Meanwhile, the cabinet is also aiming to bring down social security spending and generate funding from new taxes.
Finance Minister Lars Klingbeil defended the budget on Monday, saying the government had managed to plug a 34-billion-euro hole, and insisting the focus on military spending was justified.
"Peace in Europe is under threat from (Russian President Vladimir) Putin's imperialist delusions to a degree we haven't seen in a very long time," he told a press conference.
"We cannot defend ourselves against Putin with a balanced budget.
"We therefore have to make up, in the shortest possible time, for three decades during which our military was cut back."
Total spending in 2027 will come to €555.4 billion, 12 billion more than initially projected when draft figures were outlined in April.
New borrowing is nearly eight billion euros higher, at €118.7 billion.
Klingbeil pointed to the US-Israeli war against Iran as one reason for the extra borrowing.
The conflict and ensuing energy shock, a huge burden for German manufacturers, has dimmed hopes the country's long struggling economy will rebound this year.
"(US President Donald) Trump's irresponsible war with Iran has cut in half the upswing we had expected for this year," Klingbeil said.
Environmental protection group BUND accused the ruling coalition of an "attack on climate protection" by shifting money from the climate fund.
The coalition is led by the centre-right Christian Democrats (CDU) party of Chancellor Friedrich Merz, with Klingbeil's centre-left Social Democrats (SPD) as junior partners.
"We've only just got through the first heatwave of the summer, the need for action couldn't be clearer," BUND climate expert Tina Loeffelsend said.
But Klingbeil rejected claims Berlin was "looting" the fund, while stressing cuts were necessary to help plug the hole in the budget.
"This is happening in a moderate, manageable way and has no impact whatsoever on climate targets," he said.
Germany has set a legally binding 2045 deadline to achieve climate neutrality.
Other proposed changes ahead include cuts to social security spending.
Savings of €3 billion are planned for the pension scheme and €1.8 billion for health insurance in 2027.
Reforms to housing benefit and child benefit are expected to contribute a further €0.9 billion.
Tax measures are planned to cover the funding gaps.
The introduction of a plastic tax is expected to generate €1 billion starting in 2027, while increases in alcohol and tobacco taxes are set to bring in a combined €1.2 billion. A so-called 'sugar tax' is still in the planning stage.
Parliamentary debates on the budget will begin in September, and it is expected to be finalised by the end of 2026.