Ageing and healthcare costs push Germany’s social budget to record high

On 24 August 2026 the ifo Institute published an updated analysis of Germany’s social budget covering 1992–2025 that relies on the Bundesministerium für Arbeit und Soziales (BMAS) social budget release for 2025. The ifo paper, authored by Fischer, Höslinger, Peichl and von Gregory and released as Schnelldienst digital 14/2026, concludes that in 2025 roughly 70 percent of total social spending was related to old age and illness. The authors further report that these two categories account for more than 81 percent of the real increase in social spending since 1992.

The study also finds that, in real terms, social spending rose by about 11.5 percent between 2019 and 2025, equivalent to an increase of roughly €104 billion. The share of social spending in gross domestic product — the social‑budget ratio — rose from 29.6 percent in 2019 to about 32 percent in 2025, a new historical high. Reuters published an independent account of these headline numbers on the same day, corroborating the principal figures and making them available to a broader audience.

Taken together, the ifo analysis presents a detailed accounting: Germany’s social spending has expanded substantially in recent years, and the institute’s decomposition attributes the bulk of that expansion to demographics (ageing) and higher per‑person health and care expenditures. The paper includes tables and supplementary calculations that show how different subcomponents — pensions, long‑term care, medical services — contributed to the aggregate increase.

ifo bases its calculations on the BMAS social budget dataset and applies the ESSPROS framework (European System of Integrated Social Protection Statistics) to classify social outlays. The study extends earlier ifo work by one year to incorporate BMAS’s 2025 revisions. The authors are explicit about how data revisions affect the time series and note that GDP revisions play a direct role in determining the social‑budget ratio.

A key distinction in the analysis is between nominal and real changes. The cited 11.5 percent growth figure is adjusted for prices to reflect real increases in the volume of social spending. The paper documents that certain component time series were revised following the BMAS update; such revisions can materially alter historical comparisons if prior years are recalculated. The ifo team provides spreadsheets and methodological annexes to enable replication and scrutiny.

The authors identify further potential measurement issues: the choice of price deflator used to convert nominal spending into real terms, misclassification of some cross‑cutting expenditures (for example, prevention or labour‑market measures), and the inherent limits of administrative data. While the absolute magnitudes of the numbers are robust enough to support the central narrative, the paper underlines that precise decompositions can shift when alternative reasonable assumptions are applied.

The report’s decomposition shows two closely linked mechanisms behind the spending surge. First, demographic ageing has increased the share of older cohorts in the population, which raises demand for pensions, long‑term care and age‑related medical services. Germany’s population pyramid has shifted as large post‑war cohorts pass into higher age brackets and life expectancy remains high. The immediate fiscal effect is higher pension liabilities and greater need for funded or publicly financed long‑term care.

Second, per‑capita health costs have tended to rise. Medical innovations, more intensive treatment regimens and the introduction of costly pharmaceuticals and technologies increase average spending per patient. In addition, an expansion in reimbursable services and more comprehensive coverage in certain areas lead to rising budgetary outlays. When demographic pressure combines with higher unit costs of care, the result is a multiplicative effect on aggregate social expenditure.

ifo’s quantitative assessment attributes more than four‑fifths of the real expansion since 1992 to this combination. That implies that policies targeting only non‑age‑related components of social spending would address a limited portion of the overall growth in social outlays.

The upward shift in the social‑budget ratio to about 32 percent of GDP has immediate fiscal implications. A larger and structurally persistent share of GDP devoted to social transfers reduces the room for discretionary public spending in areas such as infrastructure, education and research unless revenues or borrowing change. It also places pressure on the balance between contribution‑financed social insurance and tax‑financed elements of the welfare system.

Policy responses may include adjustments to pension indexation, changes to the financing mix between wages‑based contributions and general taxation, reforms in long‑term care provision, and measures aimed at cost containment in the health system. The ifo study itself does not prescribe specific reforms, but by quantifying the drivers it focuses policymaker attention on where interventions would have the largest potential impact — namely, the interaction of demography and unit costs in health and care.

The findings will feed into political debates in Germany about the sustainability of the social state. Stakeholders from trade unions to employers and from health sector organisations to political parties will use the empirical results to support competing policy proposals. At EU level, similar demographic pressures elsewhere mean that Germany’s choices will be observed as part of a broader conversation about social protection models in ageing societies.

Despite the clarity of the headline results, important uncertainties remain. Data revisions made by BMAS for 2025 affected historical series and therefore influence comparisons with earlier studies. Alternative choices for price deflators or reclassification of certain spending items could change the exact percentage points attributed to particular drivers. Importantly, the projection of future pressures depends on assumptions about medical technology, productivity growth in health services, migration flows and macroeconomic performance.

Further research could explore distributional consequences of the spending shift, the role of private versus public funding in the health and care sectors, and scenario analysis under different reform packages. The ifo paper provides a transparent starting point and replication files, which should facilitate follow‑up work. Policymakers must weigh empirical diagnosis against normative choices: which services to prioritise, how to balance intergenerational fairness and fiscal sustainability, and how to design institutions that adapt to long‑term demographic change.