In the billion dollar haggling between the federal and state governments, the tone is getting rougher

Between the federal and state governments, a new noise is looming that is reminiscent of an old one. At the end of June, the question was whether all citizens would continue to be offered a free rapid corona test. There was a dispute between representatives of the Federal Ministry of Finance and the 16 state finance ministries.

According to Christian Lindner (FDP), the tests could remain free of charge - but only on the condition that each federal state finances the three euros deductible per test for its citizens from its own state budget. The federal government will not make more money available for the tests.

The next, probably much more violent showdown between the federal and state governments is now emerging with the third relief package. A nationwide public transport ticket based on the model of the 9-euro ticket is to be introduced. "The goal is an attractively priced ticket," says page ten of the decision paper of the traffic light coalition partners, with the appropriate use of funds, 49 euros to 69 euros per month are mentioned.

From the point of view of the federal government, the states are now responsible. "The federal government is prepared to provide the federal states with an additional 1.5 billion euros annually for a nationwide local transport ticket if the federal states make at least the same amount available." The word "at least" is important here.

The federal government already sees the 1.5 billion euros as a big concession. Because there was still space for the following sentence under point 13 of the package of measures: "Responsibility for local public transport lies with the federal states and municipalities." So, according to the interpretation, they should also pay for it.

The haggling over the cost of the rapid corona tests and now the successor to the 9-euro ticket reveals a deep-seated conflict that will certainly also come up in the upcoming budget debate in the Bundestag: the financial weights between the federal and state governments have changed in the The time of the Corona and Ukraine crisis was fundamentally postponed – which the federal government no longer wants to accept.

Finance Minister Lindner had already made it clear in a guest article last week that he believes that the growing co-financing is leading to financial policy imbalances. In the first half of 2022, the federal government recorded a minus of 42.8 billion euros, while the states and municipalities achieved surpluses. The federal government needs a "free back" for its original responsibilities, such as the stabilization of the social systems and the modernization of the infrastructure, wrote Lindner in the "Frankfurter Allgemeine Zeitung".

Among other things, there should be no new mixed financing in the future. Instead, that level should take over the financing in which the task is also located. The 1.5 billion euros that the federal government wants to contribute to the future nationwide public transport ticket, despite the responsibility of the federal states, also sound like a concession against this background.

Resistance is forming in the countries. "The Federal Finance Minister should not misjudge the need for action and the possibilities of the state budgets," says Doris Ahnen (SPD), Finance Minister of Rhineland-Palatinate and Chair of the Finance Ministers' Conference. A financial imbalance between the levels of government cannot be derived from the budgetary situation in 2022.

Ahnen points out that due to the Corona crisis and the Ukraine war, the federal government will continue to make use of the exception rule of the debt brake this year and can use emergency loans. "The federal states, on the other hand, have to comply with the standard limit of the debt brake again in 2022," says Ahnen.

Clear words come from Lower Saxony's Finance Minister Reinhold Hilbers (CDU). “In practice, the federal government constantly burdens the states with decisions that the states have to finance or co-finance, for example the Easter relief package or now the 9-euro ticket. Lindner first sets the fire and then presents himself as a fire brigade,” he says.

Berlin's Finance Senator Daniel Wesener (Greens) points out that until the corona pandemic and Russia's war of aggression, the financial relationships between the federal and state governments were balanced. "Only the federal government can pursue economic policy in the crisis, which is why the federal government currently has higher deficits," he says.

This exceptional situation should not be a reason to question the long-term financial relationships between the federal and state governments or to cause difficulties through structural changes. It goes without saying that the federal government would have to enter into talks with the states regarding the proposed relief measures: "Federalism is just not a one-man show," said Wesener.

Support for Lindner comes from the Federal Court of Auditors. “In fact, the federal government finances the balanced budgets of the federal states. He has thus weakened his own financial basis, ”wrote the examiners in a report that went to the Bundestag members of the budget committee the previous week. There should be no more concessions on the income or expenditure side of the federal budget.

It is not only the different amounts of new debt that lead to the conflict. The tax revenue is similar. Since 2020, most of the state's tax revenue has no longer flowed into the federal coffers, but into those of the states. This is mainly due to the distribution of the most important tax between the federal, state and local governments: VAT. In recent years, the federal government has repeatedly given percentage points to the federal states.

As a result, the federal states have a 49.4 percent share of sales tax revenue this year, the federal government 47.8 percent - the municipalities receive 2.8 percent. Ten years ago, the distribution was completely different: the federal government received 53.4 percent, the states 44.6 percent, and the municipalities 2 percent of the state's sales tax revenue.

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