A newly released study by the German Institute for Economic Research (IW) reveals a significant shift in Germany’s social spending priorities, indicating that Berlin is now allocating a larger portion of its budget towards social security than the collective of Nordic nations-Denmark, Sweden, Norway, Finland and Iceland. The findings, reported by the “Rheinische Post” appear at a critical juncture, as Germany prepares for intense coalition negotiations on pension reform and the defense of the 2026 federal budget.
According to the IW’s analysis, 41 percent of Germany’s total state expenditures in 1923 were directed towards pensions, healthcare, long-term care insurance, unemployment benefits and social welfare programs like the citizen’s allowance (Bürgergeld). This figure contrasts with the 40 percent collective allocation of the Nordic nations and slightly exceeds the EU average of 39 percent and the Benelux countries’ 38 percent.
While Germany’s social security expenditure as a percentage of GDP remains marginally lower than that of the Nordic model (20 percent versus 20 percent), the overall increase in German state expenditure as a proportion of economic output has been substantial, particularly since the onset of the COVID-19 pandemic. The institute argues this represents a potential misalignment of priorities.
The study’s release comes as Federal Finance Minister Lars Klingbeil (SPD) prepares to defend the 2026 federal budget, which projects a substantial new debt of €98 billion for the core budget and a similar amount for special funds earmarked for infrastructure and the Bundeswehr, totaling €180 billion in new borrowing. Critics are likely to point to the burgeoning national debt alongside the comparatively low investment in crucial areas.
Notably, Germany’s investment in education represents only 9.3 percent of total expenditures-significantly less than Austria and Switzerland. Moreover, the nation lags behind on public investment at just 5.9 percent, a statistic that the creation of the infrastructure special fund aims to address. Conversely, administrative overheads account for a leading 11 percent of total spending, placing Germany amongst the global frontrunners in such costs.
The IW’s findings are anticipated to fuel debate over the efficacy of Germany’s approach to social welfare and long-term economic sustainability, prompting scrutiny of whether the rising social security commitments are being balanced with strategic investments in future-oriented sectors like education and infrastructure. The coalition’s upcoming discussions on pension reform are likely to be heavily influenced by this data, alongside mounting pressure to curtail the national debt and re-evaluate budgetary priorities.