Is the next federalism reform coming?: There is resistance in the south of the republic

Bayern would like it to be different again. The state government in Munich is once again struggling with the financial equalization. It was last reformed in 2017, with the extremely active help of the then Prime Minister Horst Seehofer (CSU). The new regulation has only been in force since 2020, and there is now official talk of a financial balance, although the federal government is also more involved in this system than before.

But Seehofer’s successor Markus Söder wants to reform again and has therefore also raised the prospect of a lawsuit in Karlsruhe. The reason: The CSU boss is upset that Bavaria (as it has been for many years) will be by far the largest payer in the redistribution system in 2022. The fact that a state election is due in autumn is one reason for lamenting this permanent state of affairs. But how about the prospects in Karlsruhe?

“I don’t think that a lawsuit would have much chance,” says political scientist Wolfgang Renzsch, who has been dealing with fiscal equalization for decades. “Since 1999, the constitutional court has been appealed to twice, once by Saarland and Bremen, and then later by Bavaria and Hesse – but both times the lawsuits were withdrawn when the states had reached an agreement.”

Against your own law?

That’s how it will be now, says Renzsch: “In Munich, people threaten to go to court in order to have a certain amount of leverage in discussions with others.”

Söder and his Finance Minister Albert Füracker (CSU) already have an argument problem when it comes to internal persuasion within the countries. “The law that introduced the new financial power equalization was not insignificantly written in the Bavarian State Chancellery,” says Renzsch. So can one complain about what one once thought was good and right?

Today, the equalization of financial power works in such a way that not so many funds flow out or flow in from the state budgets. Seen in this way, payers and receivers no longer exist. Instead, most of the compensation is already anticipated when the sales tax is distributed between the countries. But of course you can also present it in such a way that it looks as if the old system still applies. Therefore, Söder complains that Bavaria bears the largest burden with around 9.9 billion.

Bund on board

The new financial power equalization is not a real flop. “The result is undoubtedly more transparent than the previous equalization,” is Renzsch’s assessment. The fact that Seehofer managed to include the federal government in the system with ten billion euros dampens the equalization volume between the states.

“Otherwise Söder could possibly appear with even higher numbers today,” says the political scientist from the University of Magdeburg. “But overall little has changed for the Free State in terms of the relationship between the states. And so the victim role is cultivated again, because it looks good in the election campaign.”

The financial relationships between the federal and state governments should be discussed as a matter of urgency

Danyal Bayaz, Minister of Finance in Baden-Württemberg

Söder will not have co-plaintiffs anyway. But there could be another way, which Füracker also hinted at recently: another federalism reform, worked out jointly by the federal and state governments. Baden-Württemberg would also take part, it looks like. “Instead of threatening lawsuits against the background of a state election, it would be better to review the issue in a federalism commission,” says Stuttgart Finance Minister Danyal Bayaz (Greens).

mixing as a problem

For many years, his head of cabinet, Winfried Kretschmann (Greens), has been one of those who would like to push through a little more autonomy. Bayaz gets involved. In a commission “should then not only be discussed about the relationship between the states, but also urgently about the financial relationships between the federal government and the states,” he demands. “Because tasks and their financing have recently been increasingly mixed up.”

However, the majority of the state governments probably have no great interest in changing the mixing much, because it is often associated with federal grants. Renzsch is correspondingly skeptical. “I expect little from a new federalism commission,” he says. On the other hand, such rounds of reform offer the chance for everyone to get involved with issues that somehow find their way into a major compromise.

Seehofer and Scholz

This was also the case during the last federalism reform, which resulted in the new financial power balance, among other things. In addition to Seehofer, one player played a prominent role on the state side who now has a lot to say in the federal government: namely Chancellor Olaf Scholz (SPD). On the federal side, however, other issues are currently in the foreground than reforms in the federal-state relationship. It would also be the fourth federalism reform within 20 years.

However, if the interests at both levels of government develop in the direction of a need for reform and if enough players expect advantages, then the topic can become dynamic. It wasn’t that long ago that Federal Finance Minister Christian Lindner (FDP) called for a new era in federal-state relations. “Autonomy, subsidiarity and efficiency have been squandered,” he wrote in a newspaper article.

“This takes away the federal government’s ability to act in budgetary policy and the federal states’ autonomous design leeway,” continued Lindner. The increasing political interdependence leads to the “diffusion of political responsibility”. From his point of view particularly worrying: “The trend towards increasing co-financing of state tasks by the federal government.” If he wants changes there, he has to offer something.

Kretschmann responded by saying that federalism needed a general overhaul. “The federal government must find a new way of dealing with the states. He has to include them in his planning at an early stage and keep to his financing commitments. We have to unbundle the tasks between the federal and state governments, because this is the only way for citizens to see who is responsible for what,” wrote the Prime Minister of Baden-Württemberg in the “Frankfurter Allgemeine Zeitung”. He called for “a big hit: a new federalism reform”. Since then there has been silence. Now something is stirring again in the south rail.

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