COLOGNE, Germany — A better-than-expected estimate of tax revenues in Germany raises the possibility of an increase in defense spending.

Finance Minister Olaf Scholz, a Social Democrat, said on Wednesday he expects a plus-up of almost €10.8 billion, or $12.9 billion, for federal agencies through 2022. The overall surplus, including states and cities, amounts to €63.3 billion, or $75.5 billion.

Initial plans are to use the funds on tax relief for middle- and low-income families, information technology in schools and for pushing broadband Internet connectivity throughout Germany. But Scholz also left the door open for an increase in defense and foreign aid, which per the coalition-government agreement between the Christian Democratic Union and the Social Democratic Party must be raised by the same amounts.

The finance minister and defense secretary Ursula von der Leyen have been going toe-to-toe in recent weeks about the level of defense spending in the years ahead. Von der Leyen submitted a formal note of protest against the initial budget draft on May 2, which she said falls €6 billion short.

The Bundeswehr has been plagued by gaping shortfalls in its equipment. Defense ministry leaders have blamed severe budget cuts in past decades for the situation, arguing much more money is needed to reach an acceptable level of readiness. Critics believe officials should first improve agency management to make sure additional funds can be spent wisely.

Chancellor Angela Merkel weighed in on the debate this week, calling the state of the Bundeswehr “unsatisfactory.”

The debate here over the defense budget comes after the ministry recently sent lawmakers a new concept of operations for the armed forces. One major change is a plan to re-prioritize the mission of homeland defense, according to officials. That core task had become subordinate to overseas operations in past years, routinely leading to the best equipment being funneled to deployed forces at the expense of those at home.

In addition, the defense ministry is pushing an ambitious plan for cyber warfare and digitization of existing formations.

Von der Leyen is under pressure from Washington to show Germany’s move toward the NATO goal of spending 2 percent of gross domestic product on defense by 2024. While many experts across the political spectrum here believe that goal is unrealistic as a yardstick for measuring defense contributions, the spending trajectory unveiled by Scholz would not move the needle in that direction and perhaps even lead to a net decrease in the share of GDP as the economy keeps getting better.

The defense ministry stands to get €38.5 billion in 2018, which is roughly €1.5 billion more than last year, and €41.5 billion in 2019.

The current spending plan would cause “damage far beyond the area of foreign policy” for Germany, said Christian Mölling, an analyst with the Berlin-based German Council on Foreign Relations. That is because a shortage of funding would undermine Germany’s claims for a leadership role in an emerging European defense posture, leaving allies here wondering if Berlin is up for the task.

Sebastian Sprenger is associate editor for Europe at Defense News, reporting on the state of the defense market in the region, and on U.S.-Europe cooperation and multi-national investments in defense and global security. Previously he served as managing editor for Defense News.

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