Germany’s public sector recorded a significant deficit in the first half of 2025, raising concerns about the nation’s fiscal trajectory and exacerbating existing inequalities between levels of government. Preliminary data released by the Federal Statistical Office (Destatis) reveals a financing gap of €58.5 billion, a consequence of public expenditure exceeding revenue by a substantial margin. Overall public sector spending surpassed the trillion-euro mark for the first time.
Total revenue reached €992.7 billion, while expenditures amounted to €1,051.2 billion. While federal and state governments witnessed increased revenue, largely driven by gains in federal and joint taxation (including value-added tax, income and corporation tax), the burden of this deficit disproportionately falls on municipalities. The finances of local authorities have worsened, with their deficit widening to €19.7 billion compared to €17.5 billion in the first half of 2024. This divergence highlights a concerning trend where higher-level governments benefit from increased tax revenue while struggling local communities face mounting financial strain.
The federal government, despite a decrease in interest payments on debt due to revised accounting practices (down 19.9% to €16.5 billion), still accounts for the largest portion of the overall deficit, registering at €30 billion. While this figure represents an improvement compared to the €35.5 billion deficit of the previous year, it underscores the ongoing pressure on national finances. States also improved their position, narrowing their deficit to €2.4 billion from €7.1 billion in the corresponding period last year.
The Social Insurance system, encompassing pension, healthcare and long-term care contributions, also faces a deficit of €6.4 billion, despite a 7.9% increase in revenue. Rising healthcare costs and demographic pressures continue to put a strain on the system.
Analysts point to a structural imbalance within the German fiscal system, where the benefits of economic growth appear concentrated at the federal and state level while local authorities are increasingly reliant on transfers and facing escalating financial vulnerability. The growing disparity in municipal finances risks undermining essential public services and hindering local economic development. The ongoing situation demands a critical reassessment of the allocation of responsibilities and resources within the German public sector and a long-term strategy to address the increasing financial pressures facing municipalities.
