Hardly any political debate in Germany goes without the accusation that politicians cannot handle money. Instead of channeling taxpayers’ hard-earned billions into crucial future projects, critics say, much of the budget is wasted on the welfare state or abroad.
A comprehensive study by the Cologne-based German Economic Institute (IW), commissioned by the Bavarian Business Association (VBW), has now once again examined whether this criticism holds true. The answer is nuanced: both yes and no.
No, because in recent years the federal government has significantly increased funding for key future-oriented tasks such as digitization, climate protection, or research—contrary to many clichés. And yes, because a substantial portion of the allocated funds is often not spent at all, while the federal budget remains dominated by social expenditures and interest payments.
Germany in a European Comparison
According to IW calculations, Germany spent about 2.7 percent of its GDP on public investment in 2023. The EU average was 3.6 percent, and Scandinavian countries reached as high as 4.4 percent. Germany is therefore lagging behind despite higher nominal amounts. “A genuine turnaround in fiscal policy” is necessary, demands the VBW. The new government course must rest on three pillars: saving, investing, and reforming.
A New Look at the Federal Budget
For its analysis, IW departed from the usual breakdown of expenditures by ministry. Instead, spending was grouped thematically—also including special funds such as the Climate and Transformation Fund (KTF). This is more accurate, as many projects are financed across several ministries.
According to IW’s definition, the central future-oriented fields include:
- Climate protection
- Digitization
- Mobility
- Education and research
- Housing and construction
- Environmental protection
Crisis management and defense were also considered as additional important fields.
Where Spending Has Increased
The numbers reveal striking shifts:
- Digitization: Between 2018 and 2024, the budget increased twelvefold to over 12 billion euros—a record growth.
- Climate protection: 29 billion euros are allocated in 2024, nearly five times as much as six years ago.
- Mobility: Expenditures rise from 33 to 56 billion euros, with rail benefiting in particular.
- Housing and construction: +55 percent, though still at a low level.
- Environmental protection: +32 percent.
- Education: Only a modest increase from 19.5 to 22.5 billion euros. As a share of the total budget, education actually declines.
The Catch: Much Remains Unused
A central issue is that many of these funds exist only on paper. In the digital sector, more than half of the available funds went unused in 2021 and 2022. In 2023, the shortfall still stood at 37 percent. Climate protection projects also stalled: of the 1.2 billion euros earmarked in 2022 for industrial decarbonization, just 9 million were spent—a realization rate of 0.75 percent. Similar gaps were seen in housing and environmental protection.
Only defense and transportation projects showed little deviation from plan, which experts attribute to clearer planning and procurement processes.
Structural Problems Persist
Despite all increases, the federal government still spends about one and a half times more on personnel and interest payments than on capital investment. Critics argue that new programs are often weighed down by excessive bureaucracy, delaying projects and preventing funds from being deployed effectively.
The VBW therefore calls for an “honest stocktaking”: public tasks must be reassessed, bureaucracy reduced, and spending more strictly prioritized. Only a fundamental shift can ensure that Germany remains financially capable of action despite demographic change.
Looking Ahead
The IW study’s findings are contradictory: on the one hand, Germany is allocating more and more money to future-oriented fields; on the other hand, implementation fails too often due to structural and procedural hurdles. Compared internationally, Germany continues to lag behind. Whether the new federal government can strike the balance—securing investments while stabilizing the budget—will be one of the central challenges of the coming years.