Germany’s Record Debt and Social Cuts Spark Coalition Clash as Labour Reforms Loom
Published on 07/06/2026 at 15:57 | Redaktion boerse-global.de
The German government’s approval of a federal budget for 2027 has ignited fierce intra-coalition disputes, as plans to tighten sick-leave rules and restrict part-time rights collide with deep social spending cuts and a historic borrowing binge. The Bundeskabinett’s adoption of the draft budget—which pushes net new borrowing past €200 billion—has also drawn sharp criticism from trade unions, environmental groups, and industry associations.
Sick-note rule and part-time rights fuel political infighting
A flashpoint emerged around new requirements for medical certificates. Federal Finance Minister Klingbeil defended proposals that would force employees to present a doctor’s note from the very first day of illness—a rule currently only in place for certain sectors. The FDP, meanwhile, is demanding structural savings by scrapping up to 100 federal agencies.
Tensions are also running high over access to part-time work. SPD vice-chairman Alexander Schweitzer pushed back against CDU demands to limit the legal entitlement to reduced hours exclusively to workers with care responsibilities. The SPD argues that many employees reduce their hours for health reasons and that productivity gains offset any scheduling challenges. This CDU proposal was already rejected by a broad majority in the Bundestag in January, including not only SPD and Greens but also Die Linke and AfD.
Record borrowing fuels defence surge and interest burden
The core budget forecasts total spending of €555.4 billion—roughly €31 billion more than the previous year. Net borrowing is projected at €203.7 billion, split between €118.7 billion for the core budget, €54.9 billion for a special infrastructure fund, and €30 billion for a separate Bundeswehr fund. Defence spending is set to jump to €109.7 billion in 2027, a 33 percent increase over 2026, and is planned to reach €183.7 billion by 2030.
Klingbeil justified the debt pile by citing necessary rearmament and modernisation. The flip side is an exploding interest bill: from €41.9 billion next year to an estimated €80.7 billion by 2030.
Social cuts and new taxes to close gaps
To offset some of the spending, the government is slashing social budgets. The health budget will fall stepwise from €21.7 billion to €14.6 billion by 2030, with the federal subsidy to statutory health insurance reduced. New revenue measures include a sugar tax expected to bring in around €0.5 billion annually, plus a new plastic levy and higher taxes on tobacco and alcohol.
The German Trade Union Confederation (DGB) reacted angrily. Deputy chairman Stefan Körzell described the social cuts as “unacceptable,” though he welcomed the planned record infrastructure investment of €117.5 billion. Environmental groups and the Federation of German Industries (BDI) also strongly criticised the budget, particularly the government’s decision to siphon €2.7 billion from the Climate and Transformation Fund to shore up the overall fiscal picture.
Austerity phase begins in 2028
Despite the current spending surge, the Finance Ministry envisions a tougher austerity regime from 2028 onward. Each ministry will then be required to cut an additional two percent. The projected fiscal gaps are widening: from €22 billion in 2028 to €47 billion by 2030.
The Bundestag is expected to vote finally on the budget draft in late November. Until then, coalition infighting is likely to intensify further.
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