The German cabinet has approved a federal budget for the coming year, and it represents a significant shift in how Germany plans to spend public money. Defence gets a major boost, in line with Germany's commitments to NATO and its response to the ongoing security situation in Europe. At the same time, the budget cuts spending on climate action and development aid, and introduces new taxes. For expats and immigrants living in Germany, this matters — not because the budget directly targets the foreign-born population, but because changes to public spending and taxation affect the cost of living, available services, and the broader economic environment in which everyone lives and works.
The most headline-grabbing element of the budget is the sharp increase in defence spending. Germany has been under pressure from NATO allies to meet the alliance's target of spending 2% of GDP on defence, and this budget makes a decisive move in that direction, with some analysts noting the figure goes even beyond previous targets.
To fund this, the government is making significant cuts elsewhere. Climate action programmes — including subsidies and investment funds that had been a feature of the previous government's agenda — are being reduced. International development aid is also being cut for the fifth time since 2023, drawing criticism from aid organisations and United Nations agencies who warn this damages Germany's global standing and its ability to support countries in crisis.
New taxes are also part of the picture, though the specific design and impact of these measures will become clearer as the budget moves through the parliamentary process.
The detail of new tax measures in the budget has not yet been fully published, but any changes to income tax, VAT, or sector-specific levies could affect expats in Germany in concrete ways. Germany already has a relatively high overall tax burden for employees, with income tax, solidarity surcharge (Solidaritätszuschlag), and social security contributions combining to take a significant portion of gross salary.
If the new taxes target specific goods, services, or income brackets, higher earners — including many skilled workers on Blue Cards or other employment-based residence permits — could be disproportionately affected. Equally, changes to VAT rates on everyday goods would affect all residents regardless of income.
Until the budget is passed by parliament and the specific tax measures are confirmed in legislation, it is difficult to give precise figures. However, expats should keep an eye on developments, particularly those approaching tax filing season or those making major financial decisions such as buying property or starting a business in Germany.
For expats who moved to Germany partly because of its reputation for environmental leadership, the cuts to climate spending are notable. In practical terms, reduced climate funding could mean fewer subsidies for electric vehicles, heat pumps, building insulation retrofits, and renewable energy installations. If you were planning to take advantage of such programmes — for example, the BAFA grants for home energy efficiency — it is worth checking current availability sooner rather than later, as budgets for these schemes may be reduced or discontinued.
Broader economic effects of reduced climate investment — such as slower growth in the green energy sector — could also affect the job market in those industries.
The specific tax measures in the approved budget are still being confirmed through the parliamentary process. Most employment income taxes in Germany are set by standing legislation and would require separate legislative changes to alter. However, sector-specific levies or changes to benefit thresholds could have indirect effects. Once final details are published, a tax advisor (Steuerberater) can help you understand the impact on your personal situation.
The budget as described focuses primarily on defence increases and cuts to climate and development aid. There is no confirmed information at this stage that Bürgergeld or Kindergeld rates are being changed as part of this budget. However, broader fiscal tightening can create pressure on social spending over time. If you receive these benefits, continue to monitor official communications from your Jobcenter or Familienkasse.
The approved German budget signals a clear political direction: more spending on security, less on climate and international aid, and new revenue measures through taxation. For expats, the most practical steps right now are to monitor the parliamentary debate for confirmed details on new taxes, check the current status of any climate or energy subsidies you were planning to use, and consult a Steuerberater if you have specific concerns about your tax situation. The budget must still pass through parliament, where further amendments are possible.
Source: The Local
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