Investment package: BUND says relief for tax failures

In the struggle for financing an investment program for the economy, the federal government and municipalities meet. “The federal government will relieve municipalities and countries at short notice by temporary, direct compensation measures,” decided the 16 Prime Minister and Chancellor Friedrich Merz (CDU) in Berlin. However, one did not agree on details yet. The modalities want to agree the federal and state governments in a working group in the next few days.

It is unclear, for example, whether the tax losses of the federal states and the municipalities are completely or only partially compensated for – and on what way money should flow from the federal government. Merz made it clear that he sees priorities at the municipalities: “We agree that the municipalities primarily need compensation, compensation for tax losses that may be associated with this investment program,” he emphasized.

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 the program that should 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 President Manuela Schwesig (SPD) indicated before the meeting that the countries could also be satisfied with partial compensation. “The main goal is that the municipalities get a complete compensation and that of course you also meet the countries,” she said.

Saxony’s Prime Minister Michael Kretschmer (CDU) said that so far the federal and state governments had only reached an “important intermediate step”. Probably the most difficult questions of how exactly and to what extent countries and municipalities are relieved must be negotiated. This should be clarified before the law of the law in the Bundestag, as Lower Saxony’s Prime Minister Olaf Lies said (SPD).

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 for disagreement in the Bundestag and Federal Council’s mediation committee because it would be delayed by this.

What a solution could look like

The federal government cannot simply transfer money countries and municipalities. However, it would be conceivable, for example, that the countries receive a higher proportion of the sales tax paid in Germany. In order to support the municipalities in a targeted manner, the federal government could help them with climate change programs or renovation projects, for example.

What should change in the federal-state finances

The Prime Minister of the CDU in particular want more. In a letter to Merz, they recently 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.

A working group should now also advise this and make a solution proposal by December. Thuringia’s Prime Minister Mario Voigt (CDU) campaigned for such a basic solution in the morning: If the financial relationships have been resolved once and not to be discussed again in every law, one can make decisions and avoid controversy during the legislative period.

Chairmanland of Saxony to the MPK