Berlin Citizens have to adjust to higher municipal fees and cuts in municipal services. The general manager of the Association of Towns and Municipalities, Gerd Landsberg, justified this with the poor financial situation of the municipalities this year and next.
“The situation is dramatic,” Landsberg told the Handelsblatt. It is to be feared that tax revenues will collapse and the investment backlog, which is already almost 160 billion euros, will continue to increase. “At the same time, the expectations of the citizens of the municipal services of general interest, such as more daycare places, better schools or cheaper local public transport, will increase the pressure on the municipalities.”
Landsberg gives people little hope that the cities and communities can do everything that is desirable. “This can apply to the legal entitlement to all-day care in elementary school, but also to many other areas, such as necessary investments in roads, transport, infrastructure and educational facilities,” he explained. “A turning point in politics also means a turning point on the ground.”
Therefore, fee increases are not excluded. A few decisions have already been made to raise the fees for municipal services such as waste disposal or city cleaning. Water and sewage charges are also increasing in many places. In some municipalities, parental contributions for day-care centers will also become significantly more expensive from 2023.
Top jobs of the day
Find the best jobs now and
be notified by email.
However, Landsberg emphasized that an increase in taxes would only be permissible if local government spending also increased. “Therefore, any fee increases will be based on the actual costs and thus also on inflation.”
Municipalities suffer from high energy and personnel costs
Inflation in Germany remains stubbornly high despite a slight decline in November. As the Federal Statistical Office announced on Tuesday, consumer prices rose by 10.0 percent in November compared to the same month last year.
>> Read here: These five reasons speak against a bad winter
In October, the annual inflation rate reached 10.4 percent, the highest level in about 70 years. Economists see no reason to sound the all-clear in the slowdown in November. Bundesbank President Joachim Nagel recently warned that the inflation rate in Germany will remain high in the coming year. “I think it’s likely that the average for the year will be a seven before the decimal point,” he said.
Some municipalities could also feel compelled to increase property and trade taxes. Landsberg expects at most moderate adjustments. “The municipalities are aware of the difficult situation in the economy and they are also aware that the citizens are suffering from inflation,” he said. Therefore, “a dramatic increase in property and trade tax is not to be expected”.
According to Landsberg, the municipalities are having trouble with the sharp rise in energy costs. “In normal years we had energy costs of five billion euros per year.” In any case, this will increase “significantly” and is currently making budget planning in cities and municipalities very difficult, explained the head of the association of cities.
Landsberg also anticipates a significant increase in personnel costs because wage demands will increase accordingly due to inflation. “In addition, the financial allocations from the federal states to the municipalities will decrease rather than increase, because the federal states also have to save.” Many municipalities are therefore “highly indebted”.
Saarland with the highest per capita municipal debt
The extent of the debt shows a model calculation by the statistical offices of the federal and state governments that was recently published. The municipalities were therefore in debt at the end of 2021 with 299.7 billion euros. That corresponded to a debt of 3895 euros per capita. The city-states are not included.
>> Read here: These are Germany’s trade tax paradises – an exclusive ranking
Municipalities and municipal associations including their holdings were included in the model calculation. In addition to the debts of the core budgets, the debts of the extra budgets and other public funds, institutions and companies, such as school associations or transport companies, were also included.
According to the model calculation, the municipalities and municipal associations in Saarland had the highest per capita debt at the end of 2021 with 6124 euros, followed by the municipalities in Hesse (5313 euros) and Rhineland-Palatinate (4688 euros).
The lowest debts per inhabitant were determined for the municipalities in Brandenburg (2535 euros), Saxony (2583 euros) and Bavaria (2744 euros).
Landsberg pointed out that the municipalities could not solve their debt problem on their own. The federal and state governments are required to find a solution here. “This is all the more urgent as the sharp rise in interest rates will place an enormous burden on the highly indebted municipalities, which will affect the urgently needed investments in particular.”
DIW boss Fratzscher calls for reorganization of the federal-state financial equalization
The President of the German Institute for Economic Research (DIW), Marcel Fratzscher, shares Landsberg’s assessment. “The municipalities need significantly more direct aid from the federal and state governments in order to be able to cope with additional expenditure in this crisis, especially for social affairs and infrastructure,” Fratzscher told the Handelsblatt. In addition, a “complete debt relief for all municipalities” must be implemented urgently by the federal and state governments.
Fratzscher also considers a reorganization of the federal-state financial equalization to be necessary. A much greater redistribution from financially strong federal states and municipalities to financially weak municipalities is necessary in order to ensure equivalent living conditions in Germany, but also to involve the financially strong federal states of southern Germany more in the energy transition and the expansion of renewable energies in the financially weaker municipalities.
“Because it is above all the financially strong municipalities that often benefit particularly strongly from the expansion of renewable energies due to their high proportion of energy-intensive industries,” said the DIW boss. “And it is often the financially weaker municipalities that shoulder the strongest expansion of renewable energies and the associated burdens without being adequately compensated for them.”
More: Risk of state-owned companies – why a huge shadow debt state is emerging in Germany