I agree with a lot of what's already been said here, regarding different ways of showing affection. It can be hard to convince yourself that it really is okay to not buy a gift. That seems to have been covered pretty thoroughly though, so I'll just share what popped into my head.
BF and I set rough gift budgets for our first few years together, but we found that it never worked for us. Usually we both blew the budget. After thinking about it for awhile, it occurred to me that we kept doing that because once that perfect gift idea gets into your head, it sticks. You know, that one gift that you just know your sweetie would love and deserves? And once that idea gets in there (which seems to have happened to your DH, jimithing), it seems almost wrong to not buy it. When you're sharing expenses, it really IS the thought that counts, and he's excited about the thought he had. This year, at least, I'd definitely have a good talk with him about next year, but if he's so positive that he's thought of a great gift, let him buy it (as long as it's financially feasible). He's probably been jittery with anticipation since it occurred to him.
That said, your feelings are also important in this matter. I think it's good that you're trying to find a compromise, but maybe the compromise you found isn't the best one for him. When you talk to him, tell him that you understand where he's coming from, and you want to know what compromises he'd be happy with. Maybe he'd prefer one gift, as opposed to a budget, or even a slightly larger budget than you suggested, or going all out for Christmas but not birthdays, or something.