Growth of Public Enterprises Limits Transparency

The core budget of the federal government, the federal states, the municipalities and social security system provide less and less of a comprehensive picture of government activities. Over the last ten years, the number and economic relevance of state-owned enterprises (SOEs), whose figures are not included in the core budgets, have increased significantly. This is confirmed by a study conducted by ZEW Mannheim with the support of the Strube Stiftung.

Enterprises that are predominantly state-owned have gained in importance, as calculations by ZEW show. Nearly 40 per cent of all public sector employees in Germany work in SOEs rather than in public authorities funded from the core budgets. Since 2008, the total number of these enterprises has grown considerably, especially among municipalities and federal states. For municipalities, the increase is 26 per cent, for federal states 54 per cent. The number of people employed by SOEs at the municipal level has reached almost the same number of employees financed through the core budgets. The total debt volume of enterprises owned by municipalities even exceeds the debt reported for the core budgets.

The authors of the study point out that SOEs are likely to offer greater flexibility and better corporate control compared to the public sector. Therefore, SOEs should not necessarily be viewed in a purely negative light, according to the study authors. “Still, high debt beyond the budget reduces fiscal transparency. Especially the federal states’ common debt figures now only provide limited information,” says ZEW economist and co-author of the study Justus Nover.

The study shows that the federal states’ debt per capita differs greatly depending on whether the debt of SOEs is considered along with the core budgets. Some federal states that already have a high debt level in their core budget, such as Berlin and Saarland, report a particularly high level of debt in SOEs, but so does the wealthy federal state of Hesse.

“Our results are also highly relevant for the debt brake anchored in the German Basic Law. Even if our analysis cannot prove it, the suspicion is that the federal and state governments are shifting debt to where it is not restricted by the debt brake,” says Friedrich Heinemann, research unit head at ZEW and head of the ZEW study.