Wiesbaden has reported a significant budgetary risk for Hesse and its municipalities. The new spring tax forecast projects a shortfall of nearly 1.8 billion euros for the state through 2030. Cities, towns, and counties stand to lose nearly 1.5 billion euros. Finance Minister Alexander Lorz cites geopolitical crises, a weak economy, and—additionally—the conflict involving Iran as the triggers for this situation. Consequently, the pressure to cut spending within the state budget is intensifying, as are the risks to municipal services. (hessenschau: 13.05.26)
Municipalities Hit Hardest by Losses in Trade Tax Revenue
The new forecast hits municipalities particularly hard. By 2030, their revenue shortfalls are projected to total 1.482 billion euros. Weaker expectations regarding trade tax revenue, in particular, are creating significant gaps. However, this tax is heavily dependent on corporate profits.
When companies earn less, the revenues of many cities and municipalities decline as a result. This hits precisely the level of government responsible for funding schools, roads, daycare centers, public pools, and statutory obligations. At the same time, pressure on the district level is mounting, as many social welfare expenditures continue to rise. Consequently, budget cuts or the postponement of projects become more likely.
Hesse Faces Reduced Fiscal Headroom
The state anticipates tax revenues of approximately 27.8 billion euros in 2026. For 2027, fiscal planners project revenues of around 29.5 billion euros. However, compared to the estimates made in October 2025, the 2026 budget faces a shortfall of 365 million euros. Nevertheless, the resulting gap in the already approved budget turns out to be smaller than might be expected.
The reason for this lies in the state government’s cautious underlying assumptions. Several financial burdens had already been factored into the planning process. These include changes to the VAT rate for the hospitality sector. Furthermore, the increased commuter allowance and revenue shortfalls resulting from the Aktivrentengesetz (Active Pension Act) are having an impact.
Lorz Points to Crises and Weak Growth
Finance Minister Alexander Lorz views the global political situation as a key driving factor. “Since the tax revenue estimate in October, not a single geopolitical crisis has subsided; on the contrary, the conflict with Iran has added another to the list,” said the CDU politician. At the same time, he points to the repercussions for consumers and households. Consequently, the financial plan now has a smaller fiscal buffer.
The magnitude of this problem is expected to persist in the coming years. Compared to the previous tax revenue estimate, there is a shortfall of approximately 350 million euros per year. However, when measured against Hesse’s more conservative financial planning framework, the annual deficit stands at between 150 and 200 million euros. As a result, cost-cutting measures and structural reforms are moving more firmly into the spotlight.
State Government Pledges Support—But No Additional Funds
Local municipalities can continue to count on support from Wiesbaden. However, Lorz made the situation clear: “Unfortunately, we cannot provide any more than we already are.” At the same time, the state government intends to maintain its multi-billion-euro transfer payments, despite facing its own fiscal pressures. Consequently, the financial situation remains strained for many local administrations.
For 2026, Hesse is already projecting a new borrowing requirement of just under 1.9 billion euros. It will therefore be crucial to see whether the German economy returns to stronger growth in the second half of the year. The Working Group on Tax Revenue Estimates presents its forecasts twice a year; the next major assessment is expected to be released this autumn.