2024-04-09 01:26:03
For years, municipalities in Germany have received more than they spent. But there is a minus for 2023. Do the citizens feel this?
After years of surpluses, municipalities in Germany are now short of money again. For the first time since 2011, cities and municipalities were in the red last year: the Federal Statistical Office reported a financing deficit of 6.8 billion euros. The large municipal associations fear that things could get even worse in the future. And they warn that important investments may therefore fall by the wayside.
For ten years, from 2012 to 2022, the municipalities always generated financial surpluses through their own tax revenues and allocations from the federal and state governments. They made the biggest increase in 2017 with 9.2 billion euros. During the Corona crisis, communities were able to stay afloat because transfers from the federal and state governments were increased.
Where the burden on municipalities increases
Now it’s not income that’s the problem, but growing expenses. According to the statistics office, municipal spending rose by a whopping twelve percent to 364.9 billion euros within a year. Social spending in particular falls on the shoulders of municipalities. They rose by 11.7 percent to 76 billion euros.
The main reason was the increased standard rates for citizens’ benefit and social assistance as of January 1, 2023. The fact that war refugees from Ukraine can receive citizen’s money also contributed to the increase – although in return the expenditure under the Asylum Seekers’ Benefits Act was 7.9 percent lower than in the previous year.
But it’s not just that. The collective agreements in the public sector with additional costs of around 80 billion and sharply rising interest expenses also spoiled the municipalities’ balance sheets. There was also a significant increase of nine percent on the income side and almost 30 billion additional flowed into the treasurers’ coffers. “However, they were unable to compensate for the increase in expenditure,” explained the statisticians.
What this could mean for swimming pools, schools and theaters
“Inflation-related dramatic increases in spending and low growth in income form a disastrous alliance,” warns the German Association of Cities. Deputy Managing Director Verena Göppert does not expect a quick recovery. “The days of balanced budgets are over for municipalities,” she predicts instead. If the federal and state governments do not give cities and municipalities more money in the long term, high deficits will be unavoidable in the coming years.
This is nothing new for many, as many German municipalities used to be notoriously cash-strapped for years. In 2003, for example, there was a loss of more than eight billion, and things also looked bad in 2009 and 2010 after the financial crisis. Citizens often feel this when outdoor pools close, theaters fall into disrepair or schools are not renovated. Göppert also now warns: “The municipalities will then not be able to invest sufficiently.”
Do municipalities need more money from the states and federal government?
The German Association of Cities sees a fundamental need for reform in the financial resources of municipalities. “We have to get away from the funding confusion, especially for the central transformation tasks that have to be implemented by the municipalities,” explained the association. CSU General Secretary Martin Huber criticized the municipalities for paying the price for federal political decisions – such as increasing citizens’ money and failing to curb migration. The traffic light government in Berlin is passing on the costs of “its fatal and unaffordable policies” to states and municipalities.
The local associations therefore advocate that cities and municipalities receive a higher share of sales tax revenue, for example. Municipalities currently receive a small share of the sales tax paid nationwide. In 2022 that was around eight billion euros. After trade tax, its share of income tax and property tax, this is one of its most important sources of income.
The Federal Ministry of Finance did not comment on this specific proposal. “The fact is that the federal government provides massive support to the states and municipalities in many areas, even in areas that are actually originally the responsibility of the states,” emphasized a spokeswoman.
What about communities that are particularly heavily indebted?
Not all municipalities in Germany are in the same bad situation – often depending on whether large companies that pay high taxes have settled in their area. There are places with very high old debts, especially in Saarland, North Rhine-Westphalia and Rhineland-Palatinate. The federal government actually wanted to relieve the financial burden on this. At least that’s what the SPD, Greens and FDP had planned in their coalition agreement in 2021: “As part of federal-state financial relations, we want to help municipalities solve the problem of old debts.”
But that isn’t making any progress either: the Basic Law must be changed in order for the federal government to provide assistance for old debts, according to the Ministry of Finance. This means that the states and especially the opposition Union would have to go along with it. And that is not to be expected before the 2025 federal election.