Who’s paying for rearmament? Not the rich

Social spending cuts and long-term loans shift the cost of rearmament to the poor and the young.

Darius Kölsch

Last week, Poland announced it seeks to quintuple its production of 155mm artillery ammunition for over €500 million, while Norway is set to buy helicopters for over €2 billion, with Germany and several other countries eyeing more purchases. As European countries announce new weapons deals weekly, the very simple question remains: where is the money coming from?

How-to: increasing spending

Classically, governments have three main ways to increase spending on a given issue: shifting budget priorities, taking up debt, and raising taxes.

Budget priorities: As we have covered previously, governments and industry were quick to jump on social welfare budgets such as unemployment benefits or pensions. They argue that defence simply takes priority over what they often implicitly portray as charity, not a basic right and something that ultimately boosts the economy.

Recently, Estonia and Finland have substantially cut welfare budgets, while Latvia and the European Commission are considering how to slash theirs.

Of course, shifting budgets does not increase the total spending cap, so reprioritisation has been accompanied by taking up new debt.

Debt: Taking up new debt is the major route taken by member countries at the EU level. The €800 billion ReArm Europe plan, for instance, includes the flagship “Security Action for Europe” (SAFE) fund that will grant up to €150 billion in loans to governments for defence purchases. This is financed by common EU debt, meaning all EU member states collectively take up money by issuing EU Bonds and Bills to private investors.

The other major pillar of the plan is loosening debt rules for defence spending. Usually, the EU caps member countries‘ annual deficit at 3% of GDP, and debt at 60% of GDP – but this plan will allow governments to tap into more debt of up to 1,5% of GDP debt to raise the capital to fund their expenses. And in March 2025, Germany, traditionally the most fiscally cautious country in Europe, prominently reformed its debt brake to allow for increased defence spending.

Tax: All sorts of taxes to fund military-related expenditure are nothing new, with history including anything from alcohol and beard taxes. And yet, governments have so far almost completely avoided raising existing taxes or introducing new ones.

This is despite the fact that taxation is empirically the most sustainable form of funding long-term spending increases, especially when it requires proportionate contributions.

But as an article in the Economist complained almost a year ago, “God forbid that anyone make voters endure the cost of it (defence).” And so, taxes have effectively remained taboo in public discussions on funding defence.

So, who’s paying?

It is true that raising taxes across the board is unlikely to be a sustainable strategy for any politician, especially during an ongoing cost-of-living crisis in Europe.

But of course, slashing social spending is nothing but a tax on those who need it most, and taking up debt is ultimately seen as a tax on the young and future generations.

These two groups are the easiest to make pay for the changes, as despite constituting a larger part of the population, they are also two demographics with relatively little political power, whether through direct representation or capital influence.

Europe has long been a model for social equity and opportunity – though there has always been substantial room for improvement. With the current setup, billionaires and their companies will profit from the rearmament push with the money of the average citizen, perpetuating a long trend of increasing wealth inequality.

Countries such as Finland that have slashed social budgets to make space for defence have simultaneously lowered taxes for corporations and top earners. Austerity policies such as these, enacted for the past two decades, operated on the same logic. 

The Russian state news agency TASS is also pushing the narrative that defence spending can only be achieved by cutting social spending. If we believe that Russia is currently the biggest threat to our democracies, why are we following its advice?

Neglecting social spending not only is detrimental to European societies broadly, but also increases their vulnerability to hybrid attacks. Despite institutions like the EU and NATO repeatedly saying they consider these attacks a threat, the focus remains principally on the military side, not the social side. If defence is really supposed to be primarily about protecting our societies, then the social spending gap in our budgets is already a major vulnerability.