"Lack of Responsibility Showcased": An Increment of Negligent Officals Amidst Berlin's Soaring Debt Levels
Berlin, the bustling capital of Germany, is facing a challenging financial situation. According to research by IWH Cologne and BBSR institutes, the city needs between 22,000 and 31,000 additional apartments per year to catch up, but its financial resources are stretched thin.
The city-state's debt situation is compounded by increased borrowing, a consequence of tight budget conditions and limited revenue relief expected through 2027. Berlin is relying on new debt enabled by a nationwide debt brake reform, federal funds, and a multi-year special loan program totaling 5.2 billion euros over 12 years for "future investments." For 2026 and 2027, the city plans to take on more than 700 million euros in new federal loans combined.
Despite this increased funding, Berlin's Senate has acknowledged an "extremely tight budget situation." All public departments will face cuts to save costs, even as some specialized areas, such as urban development and housing, see doubled budgets. The intent is to continue targeted investments while "consolidating moderately" amid no expected tax relief in the near term.
The increase in debt and borrowing aligns with Germany's broader fiscal stance, where public debt per capita rose to record highs of over 30,000 euros by the end of 2024 due to pandemic-related fiscal strain and economic stagnation risks.
Savings efforts in Berlin's budget are likely to target operational efficiencies, reduction of subsidies or transfers where possible, and tighter controls at district levels. However, specific detailed measures for savings have not been publicly detailed.
One area where savings could potentially be made is personnel costs. The Senate Department of Finance plans to spend around 13.3 billion euros on personnel costs alone by 2027, which is a third of the total budget. The number of employees in direct local service in Berlin has increased by 46 percent since 2016.
Critics, such as CDU politician Stefan Evers, argue that social spending cannot be covered without new debt and that politics seems to understand nothing about entrepreneurship. The budget, according to Evers, has no strategy.
Other criticisms include the high construction costs of the six state-owned housing companies (LWU), with their construction costs per square meter being 100-250 euros higher than those of private housing companies. If the LWU could reduce their construction costs by 5%, the entire investment requirement could be significantly reduced, according to DIW researcher Konstantin Kholodilin.
The opposition has proposed increasing the real estate transfer tax from 6% to 6.5% to generate additional revenue. If the real estate transfer tax is increased by 0.5%, it could generate an additional 75.9 million euros in revenue, according to the chairman of the Berlin Taxpayers' Association, Alexander Kraus.
In conclusion, Berlin's financial state is tight with rising debt and borrowing dictated by macroeconomic pressures and federal regulations. The city aims to balance essential investment increases with budget cuts and savings across many public departments to manage this burden. However, the path forward is not without controversy, with debates over personnel costs, the role of state-owned housing companies, and potential tax increases to generate additional revenue.
- The financial challenges in Berlin, a city that needs between 22,000 and 31,000 additional apartments annually, extend to the realm of general-news, as the city relies on new debt, federal funds, and special loans to support "future investments."
- Critics, including politicians like Stefan Evers from the CDU, question the strategy of the budget in the finance business, arguing that social spending cannot be covered without new debt and that politics fails to grasp the essence of entrepreneurship.
