European Local Government Report 2025

Local governments across Europe play a central role in delivering public services, implementing policies, and supporting economic and social development. The European Local Government Report 2025 highlights that municipalities are increasingly operating under significant financial and structural pressure, raising concerns about their long-term sustainability and effectiveness. The report provides a comparative analysis of local government systems across EU countries, focusing on fiscal autonomy, expenditure responsibilities, and governance frameworks. It ultimately argues that while local authorities remain vital to Europe’s functioning, they face persistent imbalances that require systemic reform.

Europe’s local government landscape is highly diverse, shaped by historical, political, and institutional factors. The report distinguishes between Federal systems (e.g., Germany, Austria), where regional states play a strong intermediary role, unitary systems (e.g., France), where central governments retain more control
Transition systems in Central and Eastern Europe, where decentralisation is ongoing. This diversity means there is no single model of local governance, but common challenges persist across all systems, especially regarding financing and autonomy.

A central finding of the report is the mismatch between responsibilities and financial resources at the local level. In many EU countries, municipalities are tasked with delivering key services yet lack sufficient revenue autonomy. Local governments often depend heavily on intergovernmental transfers, limiting their ability to adapt spending to local needs. The share of public revenue controlled by local authorities varies widely. Countries like Italy (31 per cent) and Poland (35 per cent) show relatively higher local revenue shares. Others, such as France (21 per cent) and Germany (19 per cent), lie somewhere in the middle and Central and Eastern European countries often remain below 20 per cent, reflecting tighter fiscal control. This variation reveals differing degrees of decentralisation, but even in more decentralised systems, true fiscal autonomy remains limited.

The report highlights a worrying trend. Many local governments are running deficits. In 2024, the EU-27 local government sector recorded an average budget balance of –2.1 per cent, indicating that expenditures exceeded revenues. Some countries experienced particularly severe imbalances. Ireland's is particularly high at 16.5 per cent, compared to Hungary at 9.5 per cent, Austria at 6.4 per cent and Germany and France at 5.1 per cent. These deficits reflect rising costs driven by recent sharp rises in inflation and energy prices, increased demand for social services and the ongoing investment needs in infrastructure and climate adaptation. At the same time, revenue streams have not kept pace, exacerbating fiscal stress.

A key structural issue identified is the limited discretion local governments have over both revenues and expenditures. Even when municipalities are responsible for delivering services, they often lack direct control over tax rates or bases, flexibility in their spending decisions and long-term financial planning capacity. This leads to a governance dilemma - local authorities are accountable for outcomes but lack the tools to achieve them effectively. The report then raises a critical question, How can local governments respond to local challenges if they control only a small share of public revenue? This imbalance weakens innovation, reduces efficiency, and constrains strategic investment.

Despite financial constraints, local governments remain critical actors in addressing Europe’s major challenges, including in climate change and energy transition, urbanisation and housing shortages and social inequality and demographic change. Other EU-wide analyses confirm that local and regional authorities implement a large share of public investment and EU legislation, making them essential for achieving policy goals. However, their effectiveness depends on having adequate resources, flexibility, and institutional support.

Local government in Ireland

Local government in Ireland occupies a relatively limited but important role within the broader public sector. The European Local Government Report 2025 identifies Ireland as an outlier in Europe due to its highly centralised governance structure and weak local fiscal autonomy. While Irish local authorities are responsible for key services, such as housing, roads, and environmental management, they operate within a system that significantly constrains their financial independence. The report highlights that these constraints have become increasingly problematic in the context of rising costs and growing service demands.

Compared to most EU countries, Ireland has one of the most centralised systems of government. Local authorities have limited taxation powers, a strong dependence on central government funding and restricted discretion over spending priorities. Unlike more decentralised countries, Irish municipalities do not control major revenue streams such as income tax or broad-based local taxes. Instead, they rely heavily on central government transfers, commercial rates and the Local Property Tax (which is partially controlled at national level). This structure reduces the ability of local governments to respond flexibly to local needs, a key issue highlighted in the report.

One of the most striking findings in the report is Ireland’s local government deficit of 16.5 per cent, the highest recorded among EU countries in 2024. This figure reflects a significant mismatch between expenditure responsibilities and available resources. Irish local authorities face increasing financial pressure due to rising construction and infrastructure costs, expanding housing responsibilities and rising Inflation and energy price increases. At the same time, their revenue base has not expanded proportionately, leaving them vulnerable to fiscal stress.

A core issue in Ireland is the lack of genuine fiscal autonomy at the local level. Even where revenue tools exist, they are tightly controlled. The Local Property Tax allows only limited rate variation by local councils, commercial rates are sensitive to economic cycles and political pressure and grants from central government often come with strict conditions. This creates a situation where local authorities are responsible for delivering services but lack the financial tools to shape outcomes. The report suggests that Ireland exemplifies a broader European problem, but in a more extreme form.

In addition to financial constraints, Irish local government has a relatively narrow range of responsibilities compared to its European counterparts. In many EU countries, municipalities play a major role in education, health services and social welfare (as indeed Ireland did in the past). In Ireland, these functions are largely now centralised. As a result, local government has less influence over key social policy areas and plays a more administrative than strategic role. So despite being the level of Government that impacts our daily lives the most, is less visible in citizens’ everyday lives. 

Recommendations 

The report highlights that Ireland’s local government structure has significant implications for addressing major challenges. Local authorities are central to housing delivery, yet their financial constraints limit their capacity to build social housing at scale and shape long-term housing strategies. Local governments are expected to implement climate policies, but funding uncertainty hampers long-term planning and limited autonomy restricts local innovation. A centralised system makes it harder to tailor policies to regional needs, contributing to imbalanced development between urban and rural areas. 

The European Local Government Report 2025 suggests several reforms that are particularly relevant to Ireland. 

• Strengthening Fiscal Autonomy - Local authorities should have greater control over tax rates and revenue generation as well as long-term financial planning. Expanding and reforming the Local Property Tax could be a key step.
• Rebalancing Responsibilities and Resources - There needs to be a clearer alignment between what local governments are expected to do and the funding they receive.
• Expanding the Role of Local Government - Ireland could benefit from devolving additional functions.
• Enhancing Democratic Accountability - Greater local autonomy should be accompanied by stronger local decision-making powers and increased citizen engagement.