Germany's governing coalition has struck a hard-fought compromise on the 2027 federal budget, dropping a promised electricity tax cut for households and delaying new taxes on sugary drinks and plastic packaging until 2028.

Chancellor Friedrich Merz's conservative CDU/CSU bloc and its Social Democrat (SPD) coalition partners reached the agreement late on Wednesday, 11 November, ahead of the Bundestag Budget Committee's final deliberations on the budget on Thursday, Reuters reported.

What was delayed and what was dropped

The tax on sugary drinks, originally planned for mid-2027, will now be introduced in 2028 instead, and will be redesigned into three tiers based on sugar content. A planned tax on plastic packaging will not be introduced for now, costing the budget an estimated 670 million euros in expected revenue for next year.

Lawmakers also failed to find the money for a broad cut in the electricity tax for all consumers, a measure Merz himself had championed and which was included in the coalition agreement. The cut would have cost roughly 5.4 billion euros a year. Some business sectors already pay the European minimum rate of 0.05 cents per kilowatt-hour.

Welfare cuts reversed

The SPD secured reversals of planned cuts to social spending. Planned reductions to housing benefit will not go ahead, and a supplementary allowance for children in low-income families that the government had planned to scrap will be retained.

The compromises clear the way for a deal on the 2027 federal budget, which the government earlier this year proposed at 555.4 billion euros. But the deal has prompted sharp criticism inside the CDU/CSU over credibility, with some in the party arguing that a flagship promise on energy costs has been abandoned. The Budget Committee takes up the final adjustments this week. Sources: Reuters; Bloomberg Law.