Investment package: Countries want a quick solution for tax failures

In the struggle for the investment program to boost the economy, several federal states insist on a rapid compromise. Until the next week there must be a solution to the loss of income from the federal states and municipalities, said Lower Saxony Prime Minister Olaf Lies (SPD) before consultations in Berlin. “We will have the decision of the Bundestag in the next week. Until then, the agreement must be so solidified that everyone knows what they are about.”

Thuringia’s Prime Minister Mario Voigt also wanted pace. “We would be well advised if we can agree on the cornerstones today,” said the CDU politician. This is necessary to make confidence again. After preliminary talks in the morning, the country representatives want to meet Chancellor Friedrich Merz (CDU) in the afternoon.

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

The Bundestag is scheduled to decide on Thursday of the coming week about a program to get the MAUE economic situation going. It contains incentives for investments, including extended tax depreciation options for machines and electric vehicles. Corporation tax should also decrease from 2028.

However, the plans would bring loss of income for the federal, state and municipalities due to falling taxes. 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.

What country representatives demand

The federal states require a financial compensation from the federal government and refer primarily to the precarious budgetary situation of many highly indebted municipalities. Mecklenburg-Western Pomerania’s Prime Minister Manuela Schwesig (SPD), however, indicated that the countries could also be satisfied with partial equalization. “The main goal is that the municipalities get a complete compensation and that of course you also meet the countries,” she said.

The countries argue, especially for the municipalities, the countries – so high that they might have to increase the trade taxes as a countermeasure and that they would ultimately have not won anything.

How it could go on

It is unlikely that there is already a complete agreement today. The Prime Minister warned that at least the principle had to be communicated that there would be compensation. One could still talk about the scope and path. “It is important that there is a proposal for the last reading until the next decision of the Bundestag,” said Schwesig. After the vote in the Bundestag, the law goes to the Federal Council, where the federal states have the last word on July 11th.

Both sides want to prevent the plans from ending up in the Bundestag and Bundesrat mediation committee because it would delay everything in terms of time.

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.

Thuringia’s Prime Minister Mario Voigt (CDU) once again campaigned for such a fundamental clarification of the federal-state financial relationships. Then you can make decisions faster during the legislative period and avoid new disputes again and again. He could also imagine that the federal states would be relieved – and if the economy jumped back to the federal government. “These are all ways that can be discussed.”

The Mayor of Bremen Andreas Bovenschulte (SPD) was skeptical here. “If we actually have so much higher income, you can think about such a mechanism.” When the economy is growing, more people come to work, social benefits – but do not lead to significantly growing tax revenue.

It would be possible that there is initially no fundamental solution, but only a compromise for this specific law. 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.

Chairmanland of Saxony to the MPK