A significant breakthrough in the federal-state fiscal cooperation has been achieved, as the German federal government has agreed to fully compensate for the reduced revenue of municipalities from 2025 to 2029, resulting from the federal government’s investment stimulus program.
The compensation will be achieved by adjusting the fixed tax rates of municipalities, according to a decision made by the federal-state working group on Monday. The federal government will take over the reduced revenue of the states in part, with the remaining part to be compensated by the states themselves.
To this end, the federal government will establish a new program to promote investments in education and childcare infrastructure and kindergartens, with a total volume of four billion euros, valid for four years. Additionally, the federal government will increase its subsidies for the transformation fund for hospitals, with an additional one billion euros for the next four years, making a total of 3.5 billion euros available annually.
The federal government will also take over the interest and repayment of the 100 billion-euro share of the states in the special fund, as well as the interest and repayment of the 100 billion-euro share of the states in the special fund.
The federal and state governments have agreed that the additional funding will not be limited to specific projects, but will be allocated in a lump sum. The scope of use will be expanded, allowing for the use of funds in areas such as sports, culture, internal security, water management and housing, among others and enabling double funding.
Furthermore, the federal government will participate in the reduction of excessive municipal debts, with a financial contribution of 250 million euros per year and the contributing states will be relieved of 400 million euros per year in the federal-state financial equalization.
The federal government will also alleviate the eastern states by taking over an additional 10 percentage points in the cost allocation between the federal government and the states in the law on the transfer of claims and entitlements from the additional and special supply systems of the accession area.
The next coalition committee will discuss the implementation of the measures. The states must now ratify the decision through their cabinets. The agreement reached in the federal-state working group is expected to serve as the basis for a protocol declaration by the federal government, to be adopted in the federal council on July 11.