The financial situation of German cities and municipalities is critical: despite historically high tax revenues, expenditure exceeds income by more than EUR 30 billion annually. This situation has led to a current debt level of EUR 200 billion, representing a 50 per cent increase within the last five years. This development highlights a growing burden on municipalities.
The German Taxpayers Federation (BdSt) views positively the mandatory regulation that the federal government will assume greater financial responsibility towards municipalities. The BdSt's demand is not for a blanket compensation, but for a systematic cost equalisation that consistently implements the principle of 'he who orders, pays'. This stance is based on the analysis that primary costs are particularly incurred by federal laws in the area of social benefits.
Reform Approaches and Future Challenges
A recent agreement between the federal government and the Länder stipulates that the federal government will bear 80 per cent of the additional costs triggered by federal social legislation, provided these amount to more than EUR 200 million for the Länder and municipalities combined. The BdSt considers this a long overdue step and expects that this regulation will sharpen cost awareness within federal ministries and the Bundestag. It notes that policy has often been practised at the expense of third parties.
Nevertheless, a central problem remains: the new regulation does not correct the current structural deficit in municipal finances. It merely offers future relief. Additional savings efforts, a comprehensive review of public tasks, and consistent digitisation of services and administrative processes are necessary to structurally relieve municipalities and reduce administrative overhead. The reform of the welfare state primarily affects the municipal level and requires decisive implementation.
With regard to the upcoming health reform in July, the BdSt appeals to the federal government to increasingly take responsibility for the healthcare costs of basic income recipients. According to the BdSt, these costs should not be financed by the community of contributors but directly by the state. This should be considered within the framework of the health reform, as well as in decisions regarding the 2027 budget and the financial plan up to 2030.
