Mounting Fiscal Strain Across German Public Sector Raises Political Concerns
Preliminary data released this week by the Federal Statistical Office (Destatis) reveals a concerning trend across Germany’s public finances. The general government sector – encompassing the federal government, states (Länder), municipalities and social security schemes – registered a significant deficit of €107.6 billion in the first three quarters of 2025, despite robust increases in both revenue and expenditure. This figure, while nominally similar to the previous year’s deficit, masks a growing fragility across different levels of government, particularly at the local level.
Total revenue surged by 6.0% to €1.49 trillion, while spending increased even more sharply, up 5.6% to €1.598 trillion. This seemingly positive growth in income was largely fueled by a substantial 7.1% rise in tax and tax-like revenues, with contributions to social security (+9.1%) and state taxes (+33.3%) leading the charge. The considerable jump in state tax revenue is particularly noteworthy, suggesting potential policy shifts at the state level and prompting questions regarding its sustainability.
However, the picture is far from uniformly positive. While the federal government continues to shoulder the largest portion of the overall deficit, the financial strain on municipalities is demonstrably escalating. Their deficit widened to €28.3 billion – surpassing the record deficit recorded for the entire year of 2024 – driven by rising personnel costs (+6.7%) and increased expenditure on social programs. The disproportionate increase in municipal spending relative to income is raising anxieties about the long-term financial health of local communities and their ability to deliver essential services.
The federal government itself also faces a growing deficit, increasing by €8.7 billion to €66.9 billion. While federal revenue increased by 2.7%, expenditure rose more rapidly at 4.3%, underscoring a growing tendency towards expansionary spending, even as concerns arise about Germany’s debt ceiling. The increase in expenditure was partially attributed to a €5.3 billion capital injection into Deutsche Bahn, the national rail operator and a rise in subsidies to social security programs. The phasing out of the EU energy crisis contribution, offset by increased tobacco taxes, further complicated the revenue picture.
The Länder’s performance was relatively stable, with a small deficit of €1.2 billion. However, escalating credit market interest expenses of €9.2 billion represent a significant long-term risk and a sign of increasing vulnerability to global economic conditions.
The data inevitably fuels a political debate. While the government may highlight the increased tax revenue as evidence of economic strength, critics argue that the widening deficits and increasing municipal financial pressure highlight a need for austerity and a reassessment of government spending priorities. The escalating deficits at the local level, in particular, may force municipalities to raise taxes or cut essential services, potentially impacting the quality of life for German citizens. Furthermore, the reliance on temporary tax boosts, like the increase in tobacco tax, raises questions about the stability of Germany’s fiscal outlook and the government’s long-term budgetary planning. The situation warrants closer monitoring and a comprehensive review of Germany’s fiscal policy framework.