Since 2014, Germany’s federal spending has risen far faster than its revenue. The sharp increase is driven largely by higher social‑security and interest costs, rather than by high inflation, the Covid‑19 pandemic, the Ukraine war or the state‑led investment offensives that some commentators have cited. The conclusion is based on a report from the Cologne Institute of German Economics (IW), commissioned by the Bavarian Business Association (VBW) and reported on by the “Süddeutsche Zeitung”.
Despite the huge additional costs, Germany still falls short of the EU average in several key future‑oriented sectors. Investments in infrastructure, defence and environmental protection are lagging behind the EU mean.
The gap is particularly pronounced in education. At the federal, state and municipal level, German spending equates to 4.5 % of GDP-well below the 6.2 % of the Nordic countries and 5.5 % of the Benelux states, and behind Austria and Switzerland, which spend 5.3 % of GDP on education.
Including 2025, nominal federal spending has climbed nearly 70 % since 2014 to roughly €500 billion a year. While a steady rise in line with inflation is necessary to guarantee stable public services over the long term, the collective price increase over the same period was only 37 %. In other words, nominal spending has grown almost twice as fast as inflation.
Tax receipts, on the other hand, have risen by only 40 % in ten years-slower than spending. The widening deficit was further amplified when the debt‑breakeven rule was relaxed in spring 2025. To close the gap, the government borrowed about €143 billion more in new loans than it repaid last year alone.
“Germany’s federal budget urgently needs a sustainable foundation again” said VBW chief executive Bertram Brossardt. “Our future spending is almost entirely financed by debt, and rising interest costs erode future policy options. Without structural reforms and decisive prioritisation of future investment, the federal budget risks collapsing-this must be prevented”.
