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In the heart of Berlin, the power dynamics between the federal government and 16 states remain as tense as ever. The current administration seeks economic recovery, but the states are set on their own agendas. Just a year ago, Finance Minister Christian Lindner's Growth Chance Act was met with resistance, resulting in a small reform with only a fraction of the originally proposed relief.
Presently, Lindner’s successor, Lars Klingbeil, is tasked with spearheading the economic recovery for the black-red federal government. Despite having access to a generous special fund, Klingbeil still faces the same roadblock: Igniting the desired upswing without the opposition of the states. The states remain steadfast in their position, asserting that they won't support tax cuts at their expense.
Two main issues have sparked recent resentment. Firstly, the states have already negotiated 100 billion euros from the 500 billion euros special fund, which they agree to divide according to the Königstein key, a method based on tax revenue and population. Secondly, and more crucially, the states contest the allocation of costs for the planned relief measures, particularly the reduction of value-added tax in the catering industry, increased commuter allowances, and improved investment depreciation.
The states argue that these measures would cause significant revenue losses. For instance, one state leader estimates losing a middle three-digit million amount due to the reduced VAT in the catering industry. Meanwhile, recent high wage agreements in the public sector and collapsing revenues due to the economic downturn have already put the states under immense pressure. Saving money to compensate for the relief measures isn't an option, as the states are responsible for funding essential services such as police, justice, and education.
However, the states aren't entirely voiceless. The federal government is expected to bear the costs, according to the coalition agreement's "causal connection" principle, which states that those causing costs should not shift the bill onto others. The states and the federal government are thus playing a game of political hot potato on our website. While some argue that the states shouldn't complain given their allocation from the special fund, the states counter that the money was intended for infrastructure investments rather than tax relief.
A resolution seems elusive at the moment. As in the previous coalition, a mediation committee between the federal government and states is in talks. Despite the current impasse, participants reported a friendly tone in the Chancellor's informal meeting with the states. The parties involved seem to acknowledge that neither the country nor the location can afford prolonged negotiations leading to an unsatisfying compromise.
The next meeting between the federal government and states is scheduled for June 18. This time, the Chancellor will be present, and the hope is that real results will be achieved. The economic package should ideally pass through the states’ chamber before the summer break, on July 11. The fate of the economic recovery, and perhaps the government’s popularity, hinges on resolving these financial disputes.
- The ongoing disagreement between the federal government and the states in Germany extends beyond economic recovery, encompassing finance, business, and politics, as they argue over the allocation of costs for proposed relief measures in general-news.
- Despite the states' access to a significant portion of the special fund, they are hesitant to support tax cuts, citing potential revenue losses and the need to maintain funding for essential services, a concern that highlights the intersection of finance, business, and politics in the current standoff about the country's economic recovery.
