German federal spending has outpaced revenue from 2014 to 2024 by a wide margin. According to a report from the Köln Institute of the German Economy (IW), commissioned by the Bavarian Business Association (VBW) and reported by the “Süddeutsche Zeitung”, the main drivers are rising social‑security costs and higher interest expenses rather than inflation, the COVID‑19 pandemic, the Ukraine war, or state investment drives.
While the government has pumped money into key priority sectors, its investment pace still falls behind the EU average. Infrastructure, defense, and environmental protection budgets lag, and the most pronounced shortfall appears in education. In that arena, federal, state, and local governments together spend only 4.5 % of GDP, compared with 6.2 % in the Nordic countries and 5.5 % in the Benelux states. Austria and Switzerland invest at 5.3 % of GDP, higher than the German level.
If 2025 is added, nominal federal expenditures have risen almost 70 % since 2014, reaching roughly €500 billion this year. Although a steady rise in line with inflation is necessary to maintain public services, the inflation rate over the same period was only 37 %. Thus, nominal spending increased almost twice as fast as price levels.
Tax receipts, by contrast, grew by only 40 % over the decade – a slower pace than spending. The gap expanded further when the debt brake was loosened in spring 2025, prompting the government to take on an additional €143 billion of new debt last year while repaying almost as much old debt.
“Germany’s federal budget urgently needs a sustainable foundation. Our future spending is almost entirely financed by borrowing, and interest costs are eroding vital future flexibility” said VBW chief executive Bertram Brossardt. “Without structural reforms and a decisive prioritisation of future investment, the federal budget risks a catastrophic collapse – that must be prevented”.