Investment package: the federal and state governments negotiate about solution for tax failures

The federal government and countries are still looking for a solution in the struggle for the federal investment program and loss of income for the federal states. In the morning, the heads of government in Berlin first come together in Berlin, in the afternoon there are consultations with Chancellor Friedrich Merz (CDU). Finance Minister Lars Klingbeil (SPD) does not yet expect an agreement.

What the federal government is planning – and what that would mean for countries and municipalities

In order to get the MAUE economic situation going, the federal government wants to give companies incentives for investments, including through extended depreciation options for machines and electric vehicles. Corporation tax should also decrease from 2028.

However, the plans for falling taxes would also bring loss of income. According to the draft law, it would be 13.5 billion euros less for the municipalities, for the federal states 16.6 billion and 18.3 billion for the federal government – a total of around 48 billion. The federal states require a financial compensation from the federal government and refer primarily to the precarious budgetary situation of many highly indebted municipalities.

What country representatives demand

North Rhine-Westphalia’s Prime Minister Hendrik Wüst (CDU) fundamentally supported the package, but referred to the principle “Whoever ordered, paid”. “Of course we are approaching the federal government with the claim of a complete compensation,” he said. In the end, however, compensation is 90 percent possible.

Berlin’s governing mayor Kai Wegner (CDU) was similar. “In the end, the federal states have to relieve the federal government’s measures.

How it could go on

Finance Minister Klingbeil dampened the expectations of the federal-state meeting: “We will probably not yet complete this at the Prime Minister Conference, because that must be discussed very precisely,” he said at an event of the “Rheinische Post”. But it is clear that there must be a solution.

Wüst was optimistic that you would come one step further at the top meeting with Merz. If an agreement was to be reached by the Federal Council meeting on July 11th, the law must now be progressed. “Otherwise it ends up in the mediation committee,” he warned.

What a solution could look like

In a letter to Chancellor Merz, the CDU Minister of Minister called for a fundamental solution: a permanent mechanism that always automatically uses countries and municipalities when federal laws lead to additional expenditure or less income. In addition, Thuringia’s Prime Minister Mario Voigt (CDU) told the “Augsburger Allgemeine” (Wednesday): “It must not be that we negotiate from the front with every new measure”.

It would also be possible that only a solution for this one specific law is found. For compensation, the countries could get a higher proportion of sales tax. It would also be conceivable that the federal government will specifically help the municipalities in climate change programs or renovation projects and thus relieve them of a detour.

Bavaria’s finance minister Albert Füracker (CSU) said the “Augsburger Allgemeine” that for an economic trend reversal, the state must first go in advance, in the form of tax failures. And if the economy attracts, more tax revenue flows again. And the federal government, countries and municipalities benefited from this.

Mecklenburg-Western Pomerania’s Prime Minister Manuela Schwesig said that the economy had to be boosted. “The common position of the countries is that this package must not be at the expense of the federal states and municipalities,” emphasized the SPD politician.

Chairmanland of Saxony to the MPK