German States,Federal Goverment Delay Fiscal Dispute Resolution Amid Modernization Push
berlin – A essential disagreement over financial responsibility between Germany‘s federal government and its states remains unresolved following the recent Prime minister’s Conference,delaying a decision on whether the federal government should cover budgetary losses incurred by states and municipalities due to federal legislation. The core of the dispute centers on the principle of “whoever orders, pays,” with states advocating for new tax and benefit laws to reflect this.
Historically, states and municipalities have absorbed the costs associated with federal laws concerning areas like childcare, inclusion policies, and refugee support. Friedrich Merz, leader of the CDU, acknowledged the need for assistance to municipalities facing budget deficits. Finance Minister Lars Klingbeil (SPD) indicated willingness to provide increased financial support to cities and municipalities if future benefit laws impact their budgets, but stated he opposes offsetting the consequences of tax laws or providing additional funds to the states directly.
The impasse led to a postponement of resolution, intended to allow the federal government “to further improve its offering,” according to Saxony’s Prime Minister Michael Kretschmer. A “enduring solution” is deemed necessary.
The dispute coincides with votes in the Federal Council on tax relief measures – an increase in the commuter allowance and a reduction in VAT on restaurant food - the costs of which would fall on states and local authorities.Kretschmer emphasized the commitment to thes reliefs, stating, “That is promised and we owe it to the peopel.” Schweitzer noted the outcome of the Federal Council vote remains uncertain, and voting behaviour was not a factor in the Prime Ministers’ conference with the Chancellor.
