High subsidies despite budget bottlenecks

The 2024 planned financial aid from the federal government totals EUR 127.3 billion, which corresponds to 3.0 percent of gross domestic product (GDP), the other financial aid (federal states and municipalities, Federal Employment Agency and EU market regulation expenditure) EUR 83.1 billion (1.9 percent) and the tax concessions EUR 74.8 billion (1.7 percent).

The total subsidy ratio was therefore 6.6 percent of GDP, roughly the same level as in 2022. In other words, subsidies have risen at the same rate as economic output since then.

The increase in subsidies is largely driven by financial aid from the federal government. During this period, they increased by a whopping EUR 42 billion, which corresponds to an increase in the federal financial aid ratio from 2.2 percent to 3.0 percent - despite budget bottlenecks and increased competition for use.

Read now: "Kiel Subsidy Report 2024: High subsidies despite budget bottlenecks"

"Subsidies are a popular instrument of economic policy because they offer politicians the opportunity to take action and intervene in the economy," explains Claus-Friedrich Laaser, one of the authors of the study. "However, subsidies are only justified if the market functions imperfectly. This is why the subsidy instrument should be used with caution."

Focus on federal financial aid: Environmental policy replaces transport sector

According to the report, the increase in federal financial aid is primarily due to the expenditure subsidies provided by the Climate and Transformation Fund: in 2022, this amounted to 13.1 billion euros, the target value for 2023 was 34.0 billion euros, and 41.9 billion euros were planned for 2024.

The focus of federal financial assistance is now clearly on environmental policy and energy, which have thus taken over from the transport sector. The most important item last year was the promotion of energy efficiency measures and renewable energies in the building sector (EUR 16.7 billion). Large subsidies also went to statutory health insurance (14.5 billion euros)

The Kiel Subsidy Report also documents financial aid from the federal government's so-called "special funds". Their share is now considerable. Whereas in 2000, 99 percent of financial aid was paid from the federal budget and only 1 percent from ancillary budgets, the proportion of subsidies paid from special funds was 37.2 percent in 2024. In 2023, according to the supplementary budget of November, it was even 49.6 percent - the decline is due to the adjustments that became necessary following the ruling of the Federal Constitutional Court.

No more fuel rebate: tax concessions are decreasing

In addition to the financial aid paid out directly, there are also tax concessions. These add up to €74.8 billion in the 2024 budget planning (2023: €77.6 billion; 2022: €85.5 billion). The ratio of tax concessions to GDP fell from 2.2 percent to 1.9 percent to 1.7 percent over the course of the three years, partly because 2022 included two major one-off concessions in the form of the high tonnage tax concession in maritime shipping and the tank discount. The most important items in 2024 were the VAT exemption for social security institutions, hospitals and medical services (€21 billion) and the distance-based tax allowance (€6.2 billion).