Federal states in turmoil: Who will pay for the new tax laws?

Federal states in turmoil: Who will pay for the new tax laws?

The implementation of the latest coalition agreement in Germany raises serious questions about the financial responsibility between the federal and state governments. As the South German newspaper reports, the adoption of individual laws could result in tax losses worth billions for the federal states. This is particularly worrying for the state capitals, which see their financial planning significantly impaired.

The federal states are therefore demanding that the federal government also financially cover the costs that arise from its own measures. In this context, the expression “Whoever orders the music has to pay for it” is often quoted. This illustrates the point of view of many state governments: If the federal government initiates or expands services, it must also ensure their financing. The coalition agreement states: “Anyone who initiates or expands a service must pay for its financing.”

Financial responsibility and causal connectivity

A central concern of the coalition agreement between the CDU, CSU and SPD is the “principle of causal connectivity”. This principle states that the government's legislative decisions that lead to higher expenditure or lower revenue for the federal states and municipalities must also be financially balanced. This regulation is intended to ensure that the states are not unduly burdened when the federal government enters into new financial obligations.

The discussion about this point is currently particularly explosive, as there are numerous initiatives coming from Berlin that could potentially have a significant impact on the federal states' budget policies. An example of this is the planned adjustment of the commuter allowance and possible changes to the catering tax. If these measures are not adequately financed, they could place a heavy burden on the coffers of many federal states.

The problem is not new, as there have been repeated tensions between the federal and state governments in the past regarding the financing of required services. The federal states are worried that they will end up having to bear the burden while the federal government makes the decisions.

In view of the ongoing discussions and the threat of financial losses, the states are clearly expressing their demands for transparency and financial support from the federal government. The success of the new legislation could ultimately depend on the extent to which an agreement is reached on the financing of these measures.

Further information on the locally relevant topics of the coalition agreement can be found on the website Federal SGK can be viewed.