Funding dispute between the federal and state governments: who is right? – Politics

Between the federal and state governments, it’s all about money again. The core of the conflict: The federal government, in the person of Finance Minister Christian Lindner (FDP), has the impression that it has to spend too much money on tasks that the federal states should actually pay for. The “financial imbalances at the expense of the federal government are likely to continue in the years to come,” according to the Federal Ministry of Finance.

That’s not true, say the countries. The federal government orders services and does not pay the entire bill, so the argument goes. “Structurally, there is no solidified financial policy imbalance,” counters a spokesman for the Ministry of Finance in Baden-Württemberg.

The federal government makes more debt, the states less

An argument for Lindner’s thesis is provided by the development of Federal and state debt. Overall, the public budgets are 2.3 trillion euros in the chalk. Of this, almost 1.6 trillion is accounted for by the federal government and 633 billion by the states. Crises such as the corona pandemic and the war in Ukraine are a particular burden on public budgets.

But while the federal government incurred even more debt compared to the end of 2021, the state debt fell in 2022. Also because the federal government paid 90 percent of the costs of fighting the pandemic in this and the following years. This is the conclusion reached by the Stability Council, a federal and state body that oversees the budgets of both levels.

At the same time, the tax revenues of the federal states are increasingly approaching those of the federal government. In 2020, the states collected more taxes than the federal government for the first time since 1998. The latest tax estimate assumes that the federal government will take in 338 billion euros this year, while the states will take in 378 billion.

One of the reasons for this dates back a few years: in 2016, the federal and state governments had agreed to reorganize their financial relationships. The new financial pact was one of the largest projects of the then grand coalition. The countries relinquished powers. For example, the federal government was given sole responsibility for the motorways and secured the opportunity to invest in the educational infrastructure of financially weak municipalities. The countries received more money for this – among other things through larger shares in the sales tax. “All countries are in a better position than before,” announced Hamburg’s then mayor Olaf Scholz (SPD).

And another circumstance plays into the hands of the financial politicians in the countries: Because of the Corona crisis, they were allowed to take out loans, which the debt brake prohibits in normal times. They only needed part of this money, says economist Thiess Büttner, chairman of the advisory board of the Stability Council. There’s still a lot of money left. The Bundesbank therefore comes to the conclusion that the very good starting position of the federal states makes it possible to “participate noticeably in the financial challenges”.

Wrangling over competences in important projects

However, the federal government cannot force them to do so. On the contrary: If the states in the Bundesrat agree, they can block many of the federal government’s projects. In the capital, politicians often depend on support from Stuttgart, Munich or Schwerin. And sometimes people in Berlin also want to have a say in the sovereign areas of their country colleagues.

First example: the so-called Deutschlandticket. The new offer for public transport should come as soon as possible. Price: 49 euros per month for passengers. 1.5 billion each for the federal and state governments. In addition, the federal government is increasing the so-called regionalization funds, with which it has to co-finance local public transport according to the Basic Law. Because the states are actually responsible for public transport. However, there was great pressure on the federal government to find a successor to the popular 9-euro ticket. And then the following applies: Whoever orders, pays.

Example two: the right to all-day care in primary schools. This was an important project for the last grand coalition. So important that it was included in the coalition agreement between the CDU/CSU and the SPD. Education is one of the main tasks of the federal states. The dispute over the financing went as far as the mediation committee, and an agreement was only reached at the last second: the federal government will transfer 3.5 billion to the states and will also contribute to the operating costs.

Example three: the Gute-Kita-Gesetz. Again, the countries are actually responsible. But the federal government urgently wanted to better equip daycare centers – and spent 5.5 billion euros on it. To the displeasure of some states: “The federal government is intervening in the pure competence of the states. The states have to shoulder the long-term financing, which runs into the billions,” complains a spokesman for the Ministry of Finance in Baden-Württemberg. It’s about staff and infrastructure.

Who loses their nerve first?

Economist Thiess Büttner cannot understand that federal politicians keep pushing projects for which the states are responsible. “We’re having political discussions in Berlin that don’t belong there,” he says. “Over the years, the federal states have repeatedly managed to have their consent to federal policies bought from them.”

From Büttner’s point of view, he creates federalism wrong incentives at this point. “As several levels work together, a waiting game begins where no one wants to start,” he says. The federal and state governments play poker: Who loses their nerve first and pays for daycare places, tablets, buses and trains?

Sarah Ryglewski (SPD) doesn’t want it to be understood in such black and white. She is Minister of State attached to the Federal Chancellor and coordinates relations between the federal and state governments: “Even without a decision by the federal government, the states would not have been able to avoid something like the legal right to all-day care in the long term,” she says. And: “If the federal government makes decisions, there can also be legitimate demands from the federal states.” You just have to have a sensible discussion.

The commuter shouldn’t care who pays for her to drive across the country for 49 euros. Even the father probably cares little about whether the federal or state government pays for all-day care. But: The haggling increases the price for the taxpayer, says Thiess Büttner.

Because the 16 federal states are so different, there is always great need somewhere. However, the funds are rarely distributed according to need, but often according to the Königstein key – i.e. according to the tax revenue and the population of the countries. “If something is to be implemented in financially weaker countries, then in certain cases we have to accept that we also give money to better-equipped countries. I would also like the countries to make different proposals for distribution,” says Sarah Ryglewski .

So far, large sums have often helped to fill in ditches. This sometimes makes political action expensive. It is questionable, however, whether the federal and state governments will find other ways to settle their conflicts.

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