Söder announces possible debts for Bavaria: What's behind it?

Söder announces possible debts for Bavaria: What's behind it?

In a dramatic turnaround in Bavarian financial policy, Prime Minister Markus Söder (CSU) has announced that new debt will be considered for 2026. Such a step would be a break with the long trend of stable, balanced budgets in Bavaria, which was maintained by the CSU for over two decades. Söder emphasizes that the necessary investments, especially in child care, housing construction and support for municipalities with health care, require financial resources. “These investments cost money,” said the Prime Minister, who sets the decision on new debt for autumn 2025 after the next tax estimate. Falling tax revenues could make the situation even worse, which would endanger a responsible fiscal situation and significantly increase the possibility of debt.

The stability of the Bavarian debt ratio, currently 4.8%, remains undisputed and is extremely low compared to the national average of over 60%, the USA with more than 120% and France with over 100%. However, this supposedly sound financial situation could be shaken if tax forecasts do not match expectations. Söder assures that the Bavarian government will not take on debt to cover campaign costs, indicating the political sensitivity of the issue.

Budget development and challenges

At a cabinet meeting, the Bavarian state government designed a supplementary budget for 2025 that does not require any new debt or new jobs. Total spending is around 77 billion euros, an increase of around 5% compared to the previous year. Investment spending has increased to around 12 billion euros, with the investment ratio remaining stable at around 15%. This shows a clear trend towards strengthening public infrastructure, particularly in education and security issues, with around €27 billion earmarked for education and €9 billion for internal security.

Nevertheless, the Bavarian government faces challenges. Predicted tax revenue shortfalls of around 1.3 billion euros for 2025 due to a weak economic situation as well as negative financial consequences of around 0.5 billion euros due to reduced population numbers after the 2022 census are affecting the budget. In addition, additional expenses must be dealt with for the accommodation of asylum seekers and for the flood damage in May and June 2024.

Political reactions

The political reaction to Söder's announcement is mixed. While the AfD parliamentary group leader Katrin Ebner-Steiner is critical of the debt approach, the SPD is calling for a “master plan” to eliminate the investment backlog in Bavaria. Both the Greens and the SPD are also calling for increased investment in infrastructure. The municipal financial equalization for 2025 will reach a new high of around 12 billion euros, which has increased by over 600 million euros compared to the previous year. This could increase the pressure on the state government in the coming financial planning.

In conclusion, it should be noted that the Bavarian state government is facing a critical phase. The balance between investments and a stable financial policy must be carefully considered in order not to endanger the Bavarian economy in the long term. A dialogue with the various political actors could be crucial in setting the course for a sustainable financial policy.