Municipalities in Lower Saxony face a cumulative deficit of 3.7 billion euros
The Bertelsmann Foundation, a renowned think tank, has highlighted the pressing need for the federal government to take a more active role in supporting municipalities with their social tasks, as municipalities collectively posted a record deficit of 25 billion euros last year. This alarming figure, revealed in the Bertelsmann Foundation's "Municipal Finance Report 2025," is primarily due to a combination of escalating expenditures, particularly in areas such as social services and pension-related costs, and revenue shortfalls caused by weak economic growth and demographic challenges.
The report identifies several key causes for these financial woes. Rising expenditures on statutory health insurance and pensions, with health insurance alone projected to face a shortfall of nearly €47 billion, are a significant contributor to the deficits at all government levels, including municipalities. Weak or stagnating economic growth, partly attributed to external trade pressures and energy costs, suppresses revenue growth for local governments. Demographic changes, notably Germany’s low birthrate leading to a shrinking workforce and increasing pension and healthcare cost burdens, further exacerbate the situation. Additionally, increased borrowing by states and municipalities as part of overall rising public debt, which climbed to a record €2.51 trillion by end-2024, places local governments under sharp debt increases.
To address these issues, the Bertelsmann Foundation proposes several solutions. Fiscal consolidation and stricter budgeting at municipal levels are crucial to control unchecked spending and restore fiscal responsibility. The federal government is also urged to provide compensatory support when tax cuts or economic measures designed to stimulate investment reduce municipal income. Structural reforms in municipal finance are another key focus, including improving financial management, leveraging better planning tools, and addressing inefficiencies to reduce deficits.
Long-term demographic policies and economic reforms are also proposed to stimulate growth and stabilize the workforce, easing future pension and healthcare funding pressures. Political challenges in budget consensus and coalition governance can complicate the implementation of these reforms, making stable political leadership essential.
The Bertelsmann Foundation also suggests setting up a federal-state special fund and a public-private future and transformation fund to help municipalities bear the costs of climate change. Furthermore, personnel expenditure for municipalities has doubled in the past ten years, and social services expenditure has increased by 25 percent over the past two years, reaching 85 billion euros.
While the specific text of the Bertelsmann Foundation's report was not available in the search results, these findings align with the overarching climate and issues detailed in Germany's municipal fiscal situation in 2025, as reported by several authoritative sources. Revenue from municipal taxes is stagnating due to weak economic growth, and the financial situation of German municipalities is in a state of collapse, according to a report.
These proposals aim to improve the financial situation of municipalities in the future, ensuring they can continue to provide essential services to their communities.
- The financial struggles of municipalities in Germany extend beyond their own borders, as increasing expenditures on industries like healthcare and pension, coupled with weak economic growth and demographic challenges, lead to record deficits.
- To alleviate the financial burden on municipalities, the Bertelsmann Foundation recommends several measures, including fiscal consolidation, stricter budgeting, and structural reforms in municipal finance, as well as political support, long-term demographic policies, and economic reforms.
