The year 2025 is a tumultuous time for German municipal finances, with the implementation of new property tax models varying from state to state almost fading into the background. But only almost. North Rhine-Westphalia and Saxony-Anhalt give individual municipalities the option of applying a uniform tax rate for central property tax B, or of distinguishing between residential and non-residential properties and taxing the latter at a higher rate. However, it is not trivial to integrate these two alternatives equitably and without disincentives in the municipal financial equalisation process. At the autumn conference of the Association of Treasurers of North Rhine-Westphalia in Hagen, Michael Thöne will present the FiFo solution, which is also set to be implemented with the GFG NRW 2026. The corresponding FiFo Report No. 35 can be found here.

The expansion of renewable energies, climate-neutral heat supply and the electrification of transport require infrastructure investments running into the billions at municipal level. However, a lack of capital and scarce human resources are slowing down the energy transition. The fulfilment of short-term mandatory tasks is increasingly crowding out long-term investments. The FiFo municipal survey NRW.BANK.Fokus Kommunen 2025 sheds light on the financial situation and investment backlogs, as well as the area of climate protection – with a particular focus on the implementation of the energy transition by North Rhine-Westphalian municipalities and their energy suppliers.

In a major interview with the Kölner Stadt-Anzeiger, FiFo Director Sebastian Siegloch advocates, among other things, reforming inheritance tax in view of tight public finances and a welfare state under reform pressure. While companies should not be taxed excessively, targeted adjustments are possible, such as lower exemptions for business assets combined with generous deferral or instalment arrangements. Germany's effective tax rate is very low by international standards, and the wealthiest heirs sometimes pay no tax at all due to exemptions. Reform could close tax loopholes, secure revenue, and enable the welfare state to act in the long term.

Local government finances are always a cause for concern. But this time it's different. Due to the ongoing economic slump, revenues are stagnating while social spending is soaring – it's a perfect storm. Local government budgets are literally falling apart. In North Rhine-Westphalia, this is particularly ironic given that the state government has just introduced a scheme to partially assume local government debts up to and including 2023. However, borrowing is growing again at an unprecedented rate due to the anticipated surge in local government costs in 2024 and 2025. Michael Thöne explains on WDR and at the Kommunalforum of LAG 21 in Düsseldorf that as long as the structural problems remain unresolved, this situation could repeat itself over and over again. Here is his updated slide set.

A dual intergenerational perspective on tax morale research characterised the FiFo visit by Tomomi Miyazaki, Professor of Public Finance at Kobe University and Bruegel Fellow. On the one hand, this enabled him to visit the long-standing ‘place of work’ of the renowned tax psychologist, FiFo Director and behavioural economist avant la lettre, Günter Schmölders. On the other hand, the discussion with the current FiFo team soon turned to the Japanese-German parallel of whether and to what extent tax morale is also influenced by intergenerational issues and perceived imbalances between young and old people. In this respect, research in both countries still has much to learn.

A significant amount of funding has recently been allocated to defence and to addressing the substantial backlog in equipment. However, this is only the first step. At the 42nd Saxony-Anhalt Security Policy Forum, Lutz-Georg Berkling, Hans-Joachim Schaprian, Rüdiger Erben and Michael Thöne will discuss how this power can be utilised effectively. The big questions that remain after the issue of funding has been addressed are summarised in the FiFo overview.

Local government finances in Germany are on a rollercoaster ride. Last year's record deficits, driven largely by social spending, are continuing. The ‘investment booster’ threatens large additional tax losses. On the other hand, the infrastructure package promises relief for local government investment gaps. And in the talks with the federal states, the Chancellor has promised compensation for municipal tax losses. Any short-term relief is welcome to those affected. However, the structural problem of the missing and unachievable connectivity between the federal government and the municipalities requires a structural solution, states Michael Thöne in heute journal up:date. He explains further on LinkedIn.

Municipal investment and large investment backlogs are well-known indicators of the financing and implementation constraints faced by German cities, municipalities and districts. The federal government's €500 billion infrastructure package is intended to provide some support in this area, too. However, the municipal infrastructure of the future will differ greatly from that of the past. In particular, it will be important to transform long-lived capital stock towards climate neutrality and avoid carbon lock-ins. The associated public finance and local political challenges were examined in a research project funded by the Sparkassen-Finanzgruppe's Stiftung für die Wissenschaft – see the new FiFo Report No. 37.

Defence, productivity, trade, research – Europe's global challenges are also its greatest opportunities. The high-level panel discussion at the EESC on European public goods offers a great chance to look at the tasks, funding and practical implementation of a ‘more European EU’. Eulalia Rubio, Marco Buti, Charles Wyplosz, Michael Thöne and others will be discussing these issues with the EESC on 5 June 2025 at 2.30 p.m. and, if you wish, with you too. Webstream and Sli.do participation via this link.