Investment dispute: Countries demand compensation for losses worth billions!

Investment dispute: Countries demand compensation for losses worth billions!

On June 18, 2025, the heads of government of the federal states will meet in Berlin to discuss a controversial investment program by the black-red government and the associated tax losses. The consultations with Chancellor Friedrich Merz (CDU) are scheduled for the afternoon, shortly after the meeting of the Prime Ministers in the morning. Finance Minister Lars Klingbeil (SPD) is skeptical and does not expect an agreement during this meeting.

The investment program provides for expanded depreciation options for machinery and electric vehicles and aims to create incentives for investments. From 2028, corporate tax is also to be reduced. However, these measures will also result in significant revenue losses, totaling around 48 billion euros: 13.5 billion euros less for the municipalities, 16.6 billion euros less for the states and 18.3 billion euros less for the federal government.

Demands for financial compensation

In view of these enormous financial losses, the states are demanding compensation from the federal government. North Rhine-Westphalia's Prime Minister Hendrik Wüst (CDU) supports the planned tax relief, but makes it clear that the states and municipalities must be able to afford them. Wüst emphasizes that although the relief measures are necessary for future growth, the financial possibilities of the countries should be taken into account.

In the current situation, many federal states are operating in the third year without economic growth and are dependent on austerity budgets. Several state leaders make it clear that approval in the Federal Council is not possible without financial compensation. Berlin Mayor Kai Wegner (CDU) also emphasized the urgency of financial relief for the states.

Potential solutions and next steps

The CDU prime ministers are calling for a permanent mechanism for automatic compensation if federal laws lead to increased spending or reduced revenue. Possible proposed solutions include a higher share of sales tax for the states and additional federal funds to support municipalities with climate protection projects or renovation measures. Bavaria's Finance Minister Albert Füracker (CSU) emphasizes that the tax losses are necessary to bring about an economic turnaround.

Prime Minister Manuela Schwesig (SPD) criticizes the distribution of the burden as unfair and demands that the package should not be one-sidedly at the expense of the states and municipalities. There will be another meeting of the Prime Ministers with Chancellor Merz next week to work out solutions and, ideally, decide on the relief before the summer break in July. Finance State Secretary Rolf Bösinger emphasizes the constructive exchange about the investment program, which requires advance investments in the short term but should lead to more economic growth in the long term.

The tension between necessary investments and the financial possibilities of the countries remains a central issue in these negotiations in view of the threat of loss of revenue. [Welt] reports that the financial challenges pose major tasks not only for the federal government, but also for the states and municipalities. [Idowa] highlights the demands of the countries that have to fear for their consent to the planned measures without financial compensation in the current budget situation.