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Home » Content » The new financing of the German ‘Länder’ reinforces the Central State
As of 2020, the debt limit of each Land will also be governed by the requirements of EU standards and will be reviewed through the Stability Council. The Municipal Promotion and Investment Fund for municipalities with deficiencies in infrastructure or sanitation matters will also increase by 3.5 million. In the same way, administrative services are unified so that, in a period of five years, bureaucratic procedures can be carried out over the Internet over any Federated State, that is, the development of the common electronic administration

Laura Cruz (Berlín) – 19/12/2016

It was a historical claim of the richest Federated States, such as Bavaria. The reform of the financing and competences of the Länder will come into effect from 2020, at which time the current cooperation agreement between territories expires. It will consist of the relief of tax charges to the Federated States, which will be assumed by the central State. This will mean a disbursement of 9.7 billion euros per year by the executive of Angela Merkel.

Germany is divided territorially into 16 federal states (Länder) since the reunification of 1990, which have constitutionally transferred all its legislative powers, unless these affect the entire Federal State. Unlike the autonomous communities in Spain, all Länder have the same powers, although there are three that are geopolitically city-states (Berlin, Bremen and Hamburg).

The economic differences between the federated states of the East (those belonging to the former GDR) and those of the West (federal Republic) are notorious, since the former are historically less developed, both industrially and in terms of finance. Their unemployment is also higher, so normally in government decisions they aim to make growth equal to the same level as the western part.

This year, the German Executive approved the largest increase in pensions in 23 years. While in the west the increase will be 4.25%, the east will benefit by 5.95% of this revaluation. The eastern part of the country also receives financial support from the richest western states from the reunification to support its reconstruction.

One of the greatest examples of this support is the solidarity tax, whereby all citizens contribute 5.5% of their gross income, which is then allocated to a distribution between the territories in a participatory manner. With this reform it will be abolished.

Contribute or depend

There are certain states that are clearly contributors, such as Bavaria and others that are economically more dependent, such as Berlin, which is why the governments of the former have long been asking the central government for tax relief. It is one of the main claims of Horst Seehofer, the leader of CSU, the Bavarian coalition of the Merkel party and participant of the Great Coalition. This matter was taken to the Constitutional Court by this Land, along with that of Hesse, another economic engine.

The finances of the poorest Länder are deficient, since their GDP is only 71% of that of the wealthiest regions and their social expenditures are 20% higher. This reform also has an inevitable constitutional reform, since this financial distribution is part of the German charter itself. In statements by the finance minister, Wolfgang Schäuble, “it will serve to establish a financial basis for the future of our federalism and also a measure of relief for the Länder. It means an improvement in federal-state relations.”

The equal increase in VAT will be eliminated and the new responsibilities of the state government include competencies in municipal transport, financial aid to river ports, subsidies for the sanitation of Bremen and Saarland infrastructure and special subsidies to the Federal States from the east.

As of 2020, the debt limit of each Land will also be governed by the requirements of EU standards and will be reviewed through the Stability Council. The Municipal Promotion and Investment Fund for municipalities with deficiencies in infrastructure or sanitation matters will also increase by 3.5 million. In the same way, administrative services are unified so that, in a period of five years, bureaucratic procedures can be carried out over the Internet over any Federated State, that is, the development of the common electronic administration.

https://www.eleconomista.es/economia/noticias/8034302/12/16/La-nueva-financiacion-de-los-Lnder-alemanes-refuerza-al-Estado-Central-.html

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