Germany will spend less money on healthcare and more on defense

BarcelonaFriedrich Merz's government has presented Germany's budget for 2027, with a historic figure: a record amount will once again be allocated to the defense budget. According to the accounts presented this Wednesday by the Minister of Finance and Vice-Chancellor, Lars Klingbeil, this year the German state foresees a total expenditure of 543.3 billion euros, 3.6% more than in the 2026 budget, and with new debt of 110.8 billion euros. Nevertheless, Merz's government is tightening its belt on the welfare state.

While the coalition between conservatives and social democrats prioritizes defense spending, the German executive approved drastic cuts this Wednesday in the federal cabinet to plug the hole in German public healthcare. The German Chancellor, Friedrich Merz, has announced a reform “that we can undoubtedly classify as historic” of German public healthcare, with the aim of saving 16.3 billion euros next year, thus avoiding a deficit system and having to increase social contributions.

This is, according to Merz, one of the biggest reforms of the welfare state in the last two decades. The chancellor, who recalled that during this time "we have spent too much," pursues a triple objective with this public healthcare reform: to keep contributions stable, reduce costs, and guarantee the financial viability of the system in the long term. “With this reform, we will make the healthcare system in Germany affordable for everyone,” promised the chancellor, who managed to push the reform through after weeks of negotiations with his coalition partners, the social democrats.

“Without the reform approved today, we would have been short about 15 billion euros to finance public health insurance. This deficit would have increased to 40 billion euros per year by 2030,” if measures are not taken to counteract it, Merz pointed out. The chancellor argues that it is better to cut medical services now than to allow social security contributions to rise. This would increase the cost of having an employee in companies, a fact that, in his opinion, would have "devastating consequences for everyone, for the economy, for the economic situation, and, ultimately, also for the labor market".

“Everyone must do their bit”, has asked the conservative politician, architect of cuts that will affect doctors, hospitals, pharmacies, the pharmaceutical industry, workers and employers. The package of savings measures announced by Merz will have consequences for citizens' pockets, as it will mean an increase in the co-payment quota for medicines, cuts in family insurance and in partial sick leave. Homeopathy, for example, will no longer be covered by social security. Preventive screenings every two years to detect skin cancer will only be maintained for the population considered “at risk” and, in addition, coverage for certain dental treatments will be reduced, according to the approved bill.

Merz expects the health reform to be approved before summer by the Bundestag, the lower house of the German Parliament; before the pension reform. In another move to raise more money, Berlin has announced the introduction of a new tax on sugary drinks from 2028. The reform also foresees an increase in contributions for insured individuals with higher incomes.

Green light in defense

In contrast, austerity does not seem to be a government priority in the defense sector. According to the accounts also approved this Wednesday by the Council of Ministers, Germany's military spending will increase by 27.6% next year: it will go from 82.7 billion euros this year to 105.8 billion in 2027. Furthermore, the new debts from the accounts will be used, in part (27.5 billion), to finance the rearmament of the armed forces created in 2025. This will allow the German Ministry of Defense, headed by Boris Pistorius, to have 133.3 billion euros for the military sector in 2027, an unprecedented figure.

“There are areas where we must continue to spend a lot of money, even more than initially planned”, especially in defense and security matters, Merz said, alluding to the turbulent international situation of the past year to justify it. “We want to be able to defend ourselves so as not to have to defend ourselves. You already know this phrase of mine, and the budget is also governed by it”, the Christian Democrat politician explained.

"My goal is that we can defend ourselves from Russian aggression, that Europe and Germany have the capacity for deterrence and defense, and this is precisely what we guarantee with these spending ceilings and with financial planning" until 2030, Klingbeil stated at a press conference. The Bundestag, the lower house of the German Parliament, approved a constitutional reform last year to make debt more flexible, which had traditionally been fixed at 0.35% of GDP, and to allow the government to incur more debt.