Finance | Bavaria threatens Berlin with a financial hammer

Lederhosen are compulsory – so far! – no requirement for state financial equalization. Photo: IMAGO/Mike Schmidt While the Left, Greens and SPD are meeting in Berlin for the first time this week for exploratory talks, panic is growing in Bavaria: "If Berlin gets a state government that has anti-Semitism and hatred of Jews in its program, we will start a joint initiative, including on the question of who finances the capital," said Klaus Holetschek, chairman of the CSU parliamentary group in the Bavarian state parliament, on Sunday after a meeting of the Union faction leaders from the Bavarian state parliament CDU/CSU-led federal states.

It is not the first attack of this kind from the south of the Federal Republic. On Monday last week, Bavarian Prime Minister Markus Söder called for the state financial equalization to be renegotiated. “It cannot be the case that extremist politics, anti-democratic politics are still rewarded, and above all anti-Semitic ones,” said Söder after the closed meeting of the Bavarian CSU parliamentary group in the Banz monastery in Bad Staffelstein. Söder called for a “fundamental reorganization” of the state financial equalization system, against which his state government had already filed a lawsuit in the Federal Constitutional Court a long time ago.

In addition to the horizontal financial equalization between the federal states, Berlin should also receive less money from the federal government's vertical financial aid. According to Söder, the capital financing agreement must be renewed if Berlin pursues the expropriation of housing companies. The federal government was paying “endless money,” Söder fumed. He received support from Minister of State for Culture Wolfram Weimer (independent, for the CDU). He told press representatives on Saturday that the funds provided for in the capital's financing agreement for cultural funding would only be invested if it was ensured that "no cultural policy is made in Berlin that systematically excludes Jewish artists."

It is unclear how exactly the Union parties want to turn off the money supply to Berlin. Unilateral termination of the capital financing agreement by one party is not possible. However, the contract is subject to budgetary reservations. The Bundestag could therefore decide not to spend the funds provided for in the contract. However, because the federal government party SPD would also sit in a red-green-red state government, this is unlikely.

Adjusting the state financial equalization system is likely to be even more difficult. “I don’t know how the Union wants to implement this either,” says Kristina van Deuverden in an interview with “nd”. The economist researches public finance at the German Institute for Economic Research. The agreement between the federal government and the federal states on state financial equalization runs at least until the end of 2030. “Bavaria cannot terminate this unilaterally,” said van Deuverden.

Berlin receives 4.2 billion euros from the state financial equalization.

She believes that financial equalization between the federal states makes sense. “The Basic Law stipulates that the aim is to achieve equality of living conditions,” she says. "There's a whole system of values ​​behind it." Within the framework of federalism, a solidarity-based redistribution between the federal states takes place. It is clear that financially strong federal states have to bear more burdens - not only proportionally, but also progressively. A failure would have serious consequences for state budgets. “The financially weak countries would then starve,” says van Deuverden.

Naturally, the Bavarian initiative is not well received by the possible governing parties in Berlin. “Bavaria was itself a beneficiary of the state financial equalization for years,” says Franziska Brychcy (Left) to “nd”. In the new legislature, she will act as the budget policy spokesperson for the left-wing faction in the House of Representatives. "The principle of solidarity must not be questioned."

The state financial equalization also makes sense for Bavaria because it strengthens the overall German economic development. “This creates added value,” says Brychcy. The future government parties can do little to help the capital's current financial difficulties. “Stefan Evers has used up all reserves,” she says of the CDU finance senator. The new coalition will strive to balance the Berlin state budget in the long term and will also increase state taxes and other income. This is how the social city should be secured.

SPD state leader Steffen Krach had already expressed criticism of the initiative last week. "The capital city contract is not a reward for a specific government or a specific election result," he told the news portal T-Online. It is irresponsible to question the financing out of “party political frustration.” The CDU parliamentary group in the Berlin House of Representatives did not respond to an nd request.

Officially, state financial equalization has been abolished since 2020. It was replaced by the so-called financial strength equalization, which, however, hardly differs functionally from the old one. A compensation mechanism is used when distributing sales tax revenue - which is split equally between the federal government and the federal states. A bonus or penalty is awarded to the respective federal states based on the country's population and tax revenue. However, the expenses do not play a role in the calculation.

Only four of the 16 federal states have to forego revenue when distributing sales tax revenue. Bavaria is the hardest hit at 11.7 billion euros. Berlin, on the other hand, leads the list of recipients with 4.2 billion euros, closely followed by Saxony with 3.5 billion euros. The allocation accounts for around 9 percent of Berlin's budget volume.

The capital financing agreement regulates the financing of tasks that Berlin has to shoulder due to its role as the federal capital. This includes, for example, the increased number of demonstrations as well as the costs of state visits and cultural institutions of nationwide importance such as the Berlin Philharmonic. It was only in September that the federal government and the Berlin state government, which was still in office, reissued the contract. It includes 2.1 billion euros for security costs and 2.9 billion euros for culture. Both the state financial equalization and the capital city financing agreement are enshrined in the Basic Law.

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