Financial crisis is looming: municipalities are struggling with sharply declining income!

Financial crisis is looming: municipalities are struggling with sharply declining income!

The financial crisis in cities and municipalities in Germany threatens to worsen further. According to the current tax estimate, municipalities have to expect significantly less money than previously expected. In particular, this year there is a shortfall in revenue of 383 million euros compared to the estimate from October 2024. Things also look bleak for next year, with a decline of 467 million euros, as reported South German newspaper reported.

These developments mean that many municipalities in Germany are increasingly affected by budget freezes. In the current situation it is already foreseeable that the coffers of many cities are empty. In order to help the municipalities, the state is planning an early disbursement of around three billion euros from the municipal financial equalization in order to stabilize the budgets.

Fluctuating tax revenues and planned relief

Overall, the tax estimate shows a slight increase of 143 million euros for the current year, while a minus of 131 million euros is forecast for the following year. In the context of the double budget 2025/2026, which will have a volume of around 135 billion euros, Finance Minister Danyal Bayaz (Greens) says that no significant additional revenue is to be expected. It is noteworthy that the federal tax relief for citizens is also taken into account in the estimate, with 1.1 billion euros being budgeted for in the budget.

In addition to these reliefs, further changes are in sight, which include, among other things, changes to the depreciation rules for investments. The federal government must expect a total of 33.3 billion euros less by 2029 than previously assumed. This has far-reaching consequences for municipal budgets, which are faced with significant declines in tax revenue.

Forecasts and demands for the future

According to expectations, municipal budgets will be heavily burdened in the coming years. The estimates show that municipal tax revenues will be a total of 27.2 billion euros lower by 2029 than previously forecast. This includes, among other things, losses of 3.5 billion euros for 2025 and up to 6.6 billion euros for 2029.

The precarious financial situation is also reinforced by dynamically growing expenditure, while tax revenue is growing ever weaker. Against this background, the German Association of Cities and Municipalities (DStGB) is calling on the new federal government to take immediate action. These include proposals such as strict connectivity, task boundaries, the relief of municipal coffers, especially when it comes to social spending, and increased financial resources from the states, as can be read on the DStGB website.

The need to reduce bureaucracy and further support municipalities is more urgent than ever in order to ensure the cities and municipalities' ability to act and invest in the long term.