Bavarian municipal finance reform criticised as inadequate for local budgets

Federal and state leaders have agreed on a new finance reform intended to ease the fiscal pressure on German municipalities. The plan establishes a mechanism whereby the federal government will cover 80 % of the costs of new federal laws that impose over €200 million per year in additional expenses on municipalities and states.

Bavarian officials, including Landkreistag president Thomas Karmasin, argue the settlement does not resolve the massive financing gaps faced by local authorities. Karmasin points to record deficits – more than €10 billion projected for Bavaria in 2024‑25 – and calls for a permanent increase of the municipal share of the value‑added tax from the current 2 % to at least 6 %, which would provide roughly €10.5 billion a year in relief. He also warns that the reform covers only new burdens, leaving existing shortfalls untouched.

SPD parliamentary group leader Holger Grießhammer echoed concerns, urging the state government to focus on small and medium‑sized enterprises, especially the craft sector. He proposes a dedicated handwerk fund to support business succession, digitalisation, climate protection and modernisation, stressing the need for stable employment, training and planning certainty for the “backbone of the Bavarian economy”.