Germany will pay more to service its public debt than it will invest in the core federal budget from 2028 onward. This is shown by an analysis by the German Economic Institute, based on the government’s current financial plan. 2027 is expected to be the last year in which investment spending exceeds interest expenses.
Interest payments are planned to rise from €41.9 billion in 2027 to €55.2 billion in 2028. The amount is then expected to reach €68.1 billion in 2029 and €80.7 billion in 2030. The German Economic Institute rounds the latter figure to around €81 billion. By comparison, investment spending in the core budget is planned at €50 billion in 2027 and €49 billion in 2030.
One in every five tax euros will go toward interest
According to the calculations, the share of tax revenue that the federal government will use for interest payments will increase from 10.5% in 2027 to 18.6% in 2030. This means that almost one in every five euros in tax revenue will be directed toward debt servicing rather than current policies or investment.
At the same time, the investment ratio in the core budget is expected to decline from around 11% in 2024 to 9% in 2027 and 7.7% in 2030. The analysis notes that the actual share could be even lower, as the planned funds are not always fully utilized.
In the German government’s calculations, investment spending appears higher because expenditure from the special funds for infrastructure and climate neutrality is also included. With these funds, total investment is planned at €124 billion in 2027 and €112.6 billion in 2030. The comparison made by the institute, however, specifically concerns the core federal budget.
Debt is rising because of defense and higher spending
The German government explains the rise in interest expenses by pointing to the increase in public debt and the higher yields on federal bonds. Net new borrowing is planned to increase from €98 billion in 2026 to €167.3 billion in 2030.
„Fiscal policy is not sustainable for the future“, economist Tobias Hentze of the German Economic Institute told Wirtschaftswoche. In his words, necessary social reforms are being postponed, while insufficient funds are being directed toward investment.
The German Council of Economic Experts is also warning that higher defense and interest expenses will widen the shortfall in the federal budget. According to the council, prolonged financing of defense through new debt would permanently increase the burden on the budget. If this approach is maintained, public debt could reach close to 100% of gross domestic product by 2040.
The draft budget for 2027 has not yet been finally adopted. The final debate in the Bundestag is scheduled for the end of November, leaving room for changes to individual spending items.
Sources: cash-online.de, wiwo.de, amp.dw.com