The bloated state: We'll just keep on merrily – Why Germany has a spending problem, not a revenue problem

65 billion euros spent on bureaucracy: How the bloated state apparatus is paralyzing Germany

The state is becoming increasingly expensive: Why the most important promise to save money is being ignored

Germany is collecting more taxes than ever before in the history of the Federal Republic – and yet the mountain of debt continues to grow relentlessly. A detailed look at the federal budget reveals a critical structural problem: While politicians demand austerity from citizens and businesses, the state itself maintains an unprecedentedly bloated administrative apparatus. Contrary to clear promises in the coalition agreement to drastically reduce material administrative expenditures, the costs for the ministries' own needs continue to explode. Record debt, spiraling bureaucratic costs amounting to billions, and a digitalization policy that creates more new jobs than it eliminates paint a picture of a system that has lost touch with fiscal reality. The following article analyzes why Germany doesn't have a revenue problem, but rather a serious spending problem – and why genuine structural reforms must begin with the state itself in order to regain the trust of taxpayers.

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Promises and reality are worlds apart

Record debt instead of austerity: Why the state is only tightening its belt at the expense of its citizens

Coalition agreements in Germany have a peculiar characteristic: they are signed with great pathos and then ignored with astonishing consistency. The black-red coalition government, which sealed its agreement entitled "Responsibility for Germany" in April 2025, is no exception. It contains a clear commitment that could hardly be formulated more ambiguously: "Reduction of all material administrative expenditures in all budget lines (excluding security authorities) with the aim of a ten percent reduction by 2029." A commitment that should compel the ministries to take a serious look at their own budgets. But anyone familiar with the current figures from the Federal Ministry of Finance will realize: the mirror paints a very different picture.

In the first four months of 2026 alone, the federal government's administrative expenditures were approximately €1.1 billion higher than in the same period of the previous year. Around €29 billion is budgeted for this expenditure area for the entire year of 2026. By comparison, administrative expenditures in the 2025 fiscal year amounted to just under €24 billion. Anyone who compares the political arithmetic of coalition promises with actual expenditures will arrive at an uncomfortable discrepancy.

When austerity policies remain on paper

Upon closer examination, the coalition's promise was ambitious from the outset, but not unrealistic. A ten percent reduction in administrative spending by 2029 would have meant saving several billion euros, given annual expenditures of this magnitude. This was intended to benefit either citizens through lower taxes, social security funds through reduced costs, or the overall budget through improved consolidation. Instead, the exact opposite is happening: the federal government's own spending is increasing.

According to budgetary regulations, administrative expenditures include expenses for business trips, office equipment and building management, vehicle fleets, contracts with external consultants, and other in-kind expenses of day-to-day operations. This does not refer to subsidies for businesses or social benefits for citizens, but rather to the operation of the state apparatus for its own benefit. The fact that these very expenditures have skyrocketed in the first months of the new government, despite an explicit commitment to savings in the coalition agreement, is more than a minor budgetary issue. It is a damning indictment.

Reiner Holznagel, president of the Federation of German Taxpayers, summed up the problem in a key sentence: Germany doesn't have a revenue problem, but a spending problem. In fact, the state is currently collecting more taxes than ever before in the history of the Federal Republic. And yet, the national debt is not decreasing, but increasing.

A federal budget that defies all comparison

The 2026 federal budget projects total expenditures of €524.54 billion and was approved by the Bundestag at the end of November 2025. This represents an increase of more than €20 billion compared to the 2025 expenditures, which amounted to approximately €502.55 billion. Net borrowing totals nearly €98 billion. New debt of this magnitude is the second highest in the history of the Federal Republic of Germany.

For the German government, this budget bears the label "Investments for the Future." Indeed, around 58 billion euros are designated as investment expenditures. However, a significant portion of the increased spending is consumption-based, meaning it flows into current costs and not into building up a sustainable capital stock. Holznagel put it bluntly in his criticism of the draft budget: "More money is being made available everywhere, but no savings are being made. The government has simply compensated for the pressure to cut spending with new debt."

In addition, there are the so-called off-budget funds, which pool debt for infrastructure, climate protection, and defense outside the core budget. These special funds are also financed by loans and add up to a total debt that, according to calculations by the Federation of German Taxpayers, is driving the debt clock to a new record pace: from around €2,800 of new debt per second to a projected increase of over €5,000 per second. According to the medium-term plans, federal spending is expected to rise to as much as €625 billion by 2030, representing a 90 percent increase compared to 2019.

The largest federal administration in the history of the Republic

Behind the rising administrative costs lies a structural problem that political commitments have so far failed to resolve: The federal administration has reached a record high in terms of positions and personnel. In 2024, the federal budget projected nearly 300,000 positions in the federal administration. In 2021, there were over 8,700 fewer. Since 2015, when the number stood at 249,000, the federal administration has grown by approximately 50,000 positions.

In a 2025 report, the Federal Court of Auditors documented the absurd situation: despite the increasing number of new positions, a constant proportion of over ten percent remain permanently vacant. Most recently, over 30,000 open positions were listed in the federal administration. The so-called "job gap," the difference between advertised and filled positions, has not narrowed despite a chronic shortage of skilled workers; in fact, it has widened in a growing number of government agencies. The Federal Court of Auditors considers this practice questionable from a budgetary policy perspective: new positions continue to be created even though existing ones cannot be filled.

Furthermore, in May 2025, the Federal Court of Auditors identified another efficiency problem: Ministries and the Federal Chancellery sometimes allocate more than a third of their staff to internal service tasks such as budgeting, personnel, and organization, without having substantiated this practice with personnel needs analyses. In some federal ministries, this means that more than a third of employees are unavailable for core ministerial tasks. This is a resource allocation that would not be considered acceptable in any private-sector company.

The government spending ratio as a thermometer of an overheated system

The government spending ratio, or the share of government spending in gross domestic product, is a much-discussed measure of the relationship between government activity and overall economic output. In Germany, it stood at 50.3 percent in 2025. In 2020 and 2021, it had risen above 50 percent as a result of the COVID-19 pandemic and subsequently recovered briefly before exceeding this threshold again in 2025. Slight declines are expected for 2026, but the structural level will remain high.

A government spending ratio exceeding 50 percent means that more than half of a country's total economic output flows through government hands or depends on government decisions. This is not a sign of economic strength, but rather a signal of the gradual displacement of private activity by public spending. The tax-to-GDP ratio, that is, the share of taxes and social security contributions in GDP, reached a historic high of 41.5 percent in 2025. For employees and businesses, this represents a burden that ranks among the highest in the world by international standards.

The cost of bureaucracy: 65 billion euros and more

In addition to the direct administrative costs incurred by the federal government, state regulation causes enormous consequential costs for the private sector. According to calculations by the National Regulatory Control Council, the bureaucratic costs for companies in Germany amount to approximately 65 billion euros annually. This figure only includes costs arising from federal regulations and only partially incorporates requirements under European law. At the beginning of 2025, the Federal Statistical Office recorded exactly 12,390 reporting obligations that companies must fulfill vis-à-vis government agencies.

The ifo Institute has estimated the total economic costs of bureaucracy in Germany to be far higher: Due to excessive regulation, Germany loses up to €146 billion in economic output annually. The potential for improvement in the digitalization of public administration alone is enormous: If Germany were to reach the level of digitalization in its public administration comparable to Denmark, its annual economic output would be €96 billion higher. These figures clearly demonstrate why reducing bureaucracy is not a peripheral bureaucratic task, but a key growth project.

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Digitalization as a misunderstood opportunity for cost savings

The way the German administration handles digitalization is particularly symptomatic of its structural problems. While almost all political actors tout digitalization as a panacea, reality paints a different picture: In the federal administration, digitalization has so far led not to job cuts, but to job creation. New IT systems have been introduced, but the workforce has not been reduced accordingly. The result is an additive modernization, in which old analog processes and new digital infrastructure are operated in parallel.

The Vodafone Institute for Society and Communications has calculated in a report that the consistent implementation of digital solutions in public administration could compensate for the shortage of up to 350,000 public sector employees by 2035. Currently, around 5.4 million people are employed in the public sector in Germany. Consistent digitization alone would save 46 million working hours annually. Instead, much like in the healthcare sector, the same information is still recorded three times on paper in many administrative units before finally being entered into a system. (Note: Reference to the non-existent hospital example for logical text flow slightly smoothed)

The core problem is structural: bureaucratic systems lack an incentive mechanism for efficiency. An agency's budget grows with the number of its employees, and a department head's status increases with the size of their organizational unit. Cost savings are not rewarded; instead, they lead to cuts in the next fiscal year. Therefore, digitalization is not used as a tool for streamlining, but rather as an argument for more resources.

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German states: 16 parallel worlds of administrative inefficiency

Criticism of inefficient administrative structures applies not only to the federal government but to the entire federal system. Each of the 16 federal states operates its own ministries, IT infrastructures, and administrative processes, which differ in essential elements. This leads to a multiplication of costs that would be unnecessary in a unified system. Software systems are developed, procured, and maintained 16 times over, even though a common platform for standard tasks such as vehicle registration, re-registration, or application procedures would be far more efficient.

The idea of ​​creating three or four consolidated units from 16 state administrations sounds utopian to some. In reality, it's a matter of sound business practice, only thwarted by entrenched political interests. A single tax ID as the basis for identification in all dealings with authorities, a multifunctional card for health, personal identification, and official communication, one data record per citizen instead of ten forms for the same matter: these concepts exist. They are rarely implemented because their introduction would require positions that currently fulfill mandates and budgets.

The private sector's benchmark and why it must apply to the state

An industrial company that, despite rising revenues, takes on ever-increasing debt, allows its overhead costs to grow unchecked, and simultaneously fails to deliver on efficiency promises to its owners would quickly face sanctions from investors. Credit rating agencies would downgrade its creditworthiness, creditors would demand higher interest rates, and shareholders would question management. Government agencies are not subject to this pressure. The owner of the state, i.e., the taxpayer, has no direct means of sanctioning it between elections. This control problem is fundamental.

While nursing homes must justify every staffing request, hospitals are radically reforming their structures under cost pressure, and medium-sized companies are scrutinizing every euro twice in the face of rising labor costs and shrinking margins, a different standard applies to public institutions. The public sector is growing in size despite, or perhaps even because of, this structural immunity to market pressure. Federal personnel expenditures have risen to over €43 billion annually in the past ten years, nearly doubling.

The fact that, precisely in this situation, the coalition promised a ten percent reduction in administrative spending by 2029 in its coalition agreement, while the figures from the first few months of the budget prove the opposite, is not a technical budgetary problem. It is a credibility problem of fundamental political significance.

Healthcare and social infrastructure are bearing the brunt of the costs

The immediate consequences of exploding government spending without corresponding cost-cutting measures hit hardest those who depend on state benefits. Social security funds are struggling with structural deficits. The funding for postgraduate training in psychotherapy, promised in the coalition agreement, has not been implemented. Master's graduates in psychotherapy cannot begin their postgraduate training because the necessary funds are lacking. Shortages in child and adolescent psychotherapy services are worsening, while the administrative apparatus continues to fund itself.

This is the structural contradiction of the bloated state: the more it spends on itself, the less remains for the services for which it exists. Shifting billions from productive investments and social welfare to administrative costs and maintaining bureaucracy is a political decision, even if it is rarely communicated as such.

What real structural reforms would mean

A serious reform of the German state apparatus would have several dimensions that go far beyond a ten percent reduction in administrative spending. First, a thorough review of tasks would be necessary: ​​Which government functions are truly essential, and which are historically grown relics without any current added value? Second, the dual federal structure for standard administrative services would have to be consolidated with shared IT platforms, standardized datasets, and interfaces. Third, the digitalization of public administration requires genuine job reduction targets, not simply additive modernizations with the same number of staff.

Fourth, the principle should be: new positions only when there is a proven need and existing capacities are simultaneously reviewed. The Federal Court of Auditors has explicitly demanded this for the federal ministries. Fifth, a serious law to reduce bureaucracy is necessary, one that not only marginally reduces existing obligations but also reviews entire areas of regulation and, if necessary, eliminates them. The fourth Bureaucracy Relief Act is intended to relieve companies of one billion euros, while the new EU directive on sustainability reporting alone will cause additional costs of 1.3 billion euros. This net balance speaks for itself.

Regaining trust means starting with yourself

The real political question behind administrative costs is that of the state's credibility as trustee of taxpayers' money. When the federal government simultaneously expects savings from citizens and businesses, discusses new burdens on social security contributions and taxes, and ignores its own coalition commitments to reduce spending within its own administration, a legitimacy gap arises that is difficult to close. The oft-quoted clause in the coalition agreement regarding administrative savings is clear in its wording and accessible to the general public. The discrepancy with fiscal reality is measurable.

Germany collects more taxes today than at any other point in its history. The tax burden is at a record high. At the same time, national debt is growing, the bureaucracy is expanding, and bureaucratic costs for businesses are rising. This triad doesn't paint a picture of an efficient, modern state, but rather of a system that, despite high revenues, is incapable of reforming itself. The savings account is on the table. The first step toward budget cuts isn't to target the citizens, but rather those who manage the money.