Tuesday, December 7th, 2021
Swimming pools tight, garbage more expensive
Most of the municipalities want to increase taxes
Higher taxes and fees for sometimes fewer services. This threatens the inhabitants of many cities and municipalities in the coming year. Many municipalities are in acute financial distress. However, further austerity measures and tax increases could lead to a dangerous vicious circle.
Due to their precarious financial situation, a large number of municipalities in Germany are planning to increase fees and taxes. Some want to take new austerity measures and cut benefits at the same time. This is the result of a study by the consulting company EY among 300 German municipalities with at least 20,000 inhabitants.
70 percent of those surveyed plan to raise local taxes or duties. In particular, the water supply and garbage disposal are expected to become more expensive. This is what 40 percent of the cities and municipalities are planning to do. 32 percent are planning an increase in property tax, while trade tax is to be increased in 29 percent of the municipalities; This is followed by street cleaning, which is expected to become more expensive in 28 percent of municipalities. Cemetery and parking fees are expected to rise in 18 and 17 percent of the municipalities, respectively.
The communal swimming pool is right at the top of the cross-off lists for communal services: 16 percent of the cities and municipalities surveyed are planning to close or limit their operation. Street lighting is to be saved in 13 percent, and every ninth municipality wants to close libraries or other cultural institutions. Overall, however, a good quarter fewer cities and municipalities are planning austerity measures than tax increases. From the point of view of Martin Schneider, who is responsible for the government and public sector in Germany at EY, this is due to the fact that many financially weak municipalities have already cut their services to a minimum in recent years.
Similar reaction for years
Schneider warns of a negative spiral of financial hardship, tax increases and austerity measures. “The reactions to the municipal financial crisis have been similar for years: benefits are being cut and taxes are being increased,” Schneider observes. “The result is that financially distressed municipalities are becoming increasingly unattractive for both citizens and companies – it’s a vicious circle.” The gap between rich and poor municipalities is widening, says Schneider.
According to Schneider, the current crisis shows that the financial resources of the German municipalities are “anything but sustainable”. For example, 40 percent of the municipalities in the old federal states expect their debt to rise in the next three years and only 29 percent expect their debt burden to decrease. The situation in eastern Germany is assessed much more positively: here only 14 percent expect rising debt and 52 percent expect it to decrease. More than every third municipality in Germany currently does not expect to be able to repay its debts on its own.
Due to high spending and, in some cases, a sharp drop in income, the proportion of cities and municipalities that are expected to close the current year with a budget deficit has risen again: from 51 to 55 percent. For comparison: In the pre-Corona year 2019, only 13 percent of the municipalities had a budget deficit.