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Viewpoint: Ten proposals for financial reform in Germany

“Whoever pays the piper calls the tune!” In a federal state, like the Federal Republic of Germany, the type and scope of federal, Land and municipal government activities depend on their financial resources and their powers in financial matters. As Udo Margedant and Werner Heun have shown, their activities are further limited by European legislation (see references). As a solution to the problems faced by the Länder and the municipalities, I am advancing these 10 theses: Admit that the jurisdictions of Länder and federal government are intertwined. The Constitution of the Federal Republic of Germany, the Basic Law of 1949, has been in effect for more than 50 years and during that time, the decisionmaking jurisdictions of the federal, Land and municipal governments have become highly intertwined. This is contrary to the basic concept of federalism and local autonomy. Many reforms in the regime and in practical policies have had the effect of transferring tasks and powers to the central government. In addition, the Federal Council or upper house, in which the Land governments are represented, has played an ever-greater legislative role. As Ursula Männle has shown, the result has been an erosion of the powers of the Länder parliaments (see references). Distentangle the jurisdictions. A discussion has therefore arisen over how to disentangle and decentralize legal and legislative powers (subsidiarity principle -see federal government to contribute to box). This is true, as well, of the the financing of them. As Wolfgang financial regime and, in particular, Renzsch has argued, there is an the equalization payments between urgent need to reunite legislative the federal government and the authority and financial Länder and also among the Länder. responsibility (see references) and 3. End the disconnect between power and responsibility. There is to introduce a binding co-funding rate for the federal government when it creates cash benefits, for a great disconnect now between instance in social services. legislative powers and financial responsibility. The connectivity 4. Increase powers for the Länder. principle entrenched in the The leeway of the Länder to do as constitution – whoever creates and they see fit is too limited, especially carries out a program must also pay by federal framework statues and for it – often does not apply to a joint federal-Land programs (the large extent. There is more and construction of universities, more federal legislation that the economic development, etc.). Länder have to implement on their Shared funding leads to high own and pay for. Federal legislation administrative costs, delays and transfers programs to cities and inflexibility. Joint federal-Land municipalities, without any firm programs should be eliminated. commitments on the part of the Federations Special Triple Issue: Themes of the International Conference on Federalism 2002 5. End distortions to competition. Federal financial assistance Three orders of government in Germany distorts competition among the Bund: the federation – the federal government of the Federal Republic of Länder. The federal financial Germany. Its powers were set out in the Basic Law of 1949 (Grundgesetz).assistance to prevent macro-The origins of the federation go back to the German Empire founded in economic disturbances and 1871: there were 25 states in that federation, of which Prussia was by far the encourage economic growth most powerful. Both Nazi Germany and the Communist German Democratic should be eliminated. Equalization Republic (1949-1990) abolished the Länder, but the Federal Republic of payments are so complicated that Germany reinstated them. The so-called “eternity clause” in Article 79.3 of only experts now can understand the Grundgesetz specifies that the federal system as such must never bethem. They are also unfair abolished.because they disadvantage politically and economically Land: one of 16 sub-national units in the Federal Republic of Germany. successful Länder. There were 11 Länder before the unification of Germany. Only three of them have exact historical antecedents – Hamburg, Bremen, and Bayern (Bavaria).6. Give taxation powers to the The Länder have certain rights specified in the constitution, and possess Länder. A precondition of strong residual rights for those rights not assigned to the federal government orfederalism is that the Länder have listed as “concurrent rights”. The exclusive rights of the Länder are those oftheir own taxation powers. The administration plus all those relating to police and public order, culture, the Länder must not become media and education.dependent on the federal government. The Länder should Stadt, Gemeinde: city, municipality: the municipal order of government. In have full authority to set addition to the three city-states of Berlin, Hamburg and Bremen (whichregionally-applicable taxes comprise three of the 16 Länder), there 13,682 cities and municipalities in (property taxes, motor vehicle Germany. They have differing powers: there are 112 Kreisfreie Städte ortaxes, inheritance taxes). “cities without districts” that have the same powers as districts (Kreisen). 7. Give income tax powers to the Länder. Autonomy for the Länder in tax matters should be increased equalization payments, in regard to income tax and unearmarked transfers are corporate tax as well. preferable to transfers for specific purposes. 9. Enforce disentanglement, References … in German connectivity, transparency, subsidiarity. The watchwords for • Udo Margedant, “Grundzüge der deutschen Finanzordnung,” in the reform of the financial regime Föderalismusreform: die deutsche Finanzordnung auf dem Prüfstand, are disentanglement, connectivity, Zukunftsforum Politik Nr. 44, published by the Konrad-Adenauer-Stiftung transparency and subsidiarity (see (St. Augustin, 2002), p. 7 – 18 box). There should be greater responsibility, competition should •Werner Heun, Allocation of Tasks and Regimes of Public Finance be facilitated, and decisions shouldResponsibilities between the Federal and other Levels of Government, be more easily monitored.General Report, in: Eibe Riedel (ed.), Aufgabenverteilung und Finanzregime im Verhältnis zwischen dem Zentralstaat und seinen Untereinheiten, 10. Renounce “federalism ofSchriften der Gesellschaft für Rechtsvergleichung, vol. 195 equality”. We need to renounce (Baden-Baden, 2001), p. 17 – 33. the federalism of equality and Ursula Männle, “Thesen zur Reform der Finanzverfassung,” in Zukunftsforum redistribution and move to Politik No. 44 (footnote 1), p. 19, 20. competitive federalism. This is not inconsistent with either equivalentWolfgang Renzsch, Finanzausgleich und die Modernisierung des living conditions within the federalBundesstaates. Perspektiven nach dem Urteil des state or the solidarity principleBundesverfassungsgerichts (Friedrich-Ebert-Stiftung: Bonn, 2000), p. 1 – 18. (see box). •Kurt Döring, “Ein bisschen Wettbewerb” in Frankfurter Allgemeine Zeitung v. 14, May 2002, p. 10. Federations Special Triple Issue: Themes of the International Conference on Federalism 2002