Germany Surpasses Nordic Countries in Social Spending, Allocating 41% of State Expenditure to Social Security in 2023

A recent study by the Institute of the German Economy (IW) reveals that Germany has taken the lead in social security spending among European nations, surpassing the Nordic countries. In 2023, Germany allocated 41% of its total state expenditure to social security, including pensions, healthcare, nursing, unemployment insurance, and social benefits such as the citizen's income. This compares to 40% for the Nordic countries (Denmark, Sweden, Norway, Finland, and Iceland) and 39% across the European Union on average.

Despite this high share of social spending, Germany remains moderate in pension security, with nearly half of its social expenditure directed there. Germany and the Nordic countries both spend about 20% of their GDP on social security, slightly higher than the EU average of 19%.

The study, released ahead of Germany's Bundestag budget week and party negotiations over pension reforms, highlights some critical fiscal figures. German Finance Minister Lars Klingbeil is preparing to present the 2026 federal budget, which forecasts a core deficit of €98 billion and total borrowing of €180 billion, including special funds for infrastructure and defense.

However, the study also points to challenges in other public spending areas. Germany's spending on education is 9.3% of total expenditures, significantly lower than peers like Austria and Switzerland. Public investment in Germany is the lowest in comparison, at just 5.9%. Administrative expenses have risen to 11%, representing a high international rate. Defense spending remains stagnant at 2.3% of the total budget, unlike the upward trend seen in the Nordic countries.

The IW study warns about the risks of continued growth in social expenditures amid ongoing geopolitical tensions. It recommends a thorough review of state spending priorities to ensure fiscal sustainability and balance across sectors.

Overall, Germany's ascendance to the top in social security spending reflects both demographic pressures and policy choices but also underscores the need to address imbalances in education, investment, and administrative efficiency.