Hurry up on Bankroll Boost: States Demand Swift Action from Federal Government by Next Week on Tax Shortfalls
Local Authority Figures Vow Resolution Against Tax Avoidance Scandal by Upcoming Week - Government Leaders to Settle Tax Evasion Issues by Next Week
State leaders are putting on the heat for the federal government to reach a settlement on the investment program. By the coming week, an answer is needed to address the revenue deficits of states and municipalities, declared Lower Saxony's Prime Minister Olaf Lies (SPD) prior to discussions in Berlin, "Next week, we'll have the Bundestag's decision. Until then, the agreement must be finalized so everyone is on the same page."
The Bundestag is poised to resolve the program, aimed at invigorating the flagging economic condition, on the following Thursday. It encompasses incentives for investments, like expanded depreciation choices for machinery and electric vehicles. From 2028, the corporate tax rate is also scheduled to drop. However, these moves would result in losses of revenue for both the federal government and the states due to an reduction in taxes.
Schwesig: Support especially for municipalities
The states insist on financial reimbursements from the federal government, focusing on the precarious financial circumstance of many heavily burdened local governments. Mecklenburg-Vorpommern's Minister President Manuela Schwesig (SPD) suggested that the states might be satisfied with partial compensation, "The primary objective is for municipalities to get complete reimbursement, and the states deserve attention as well." Today's talks should clarify that there will be reimbursement, with details regarding the extent and method to be tackled later. "It's crucial that a plan is available before the Bundestag's final vote," she said. Following the Bundestag's vote, the bill moves to the Bundesrat, where the states have the final say on July 11.
Voigt seeks a comprehensive financial solution
Thuringia's Minister President Mario Voigt (CDU) called for a fundamental reevaluation of the federal-state financial relationship. He proposed an almost automatic reimbursement mechanism in cases where federal decisions cause tax shortfalls for the states. This would expedite the decision-making process throughout the legislative period and prevent ongoing disputes, he suggested, "These are all paths that can be considered."
Agenda for the MPK:
- Investment Package
- Bundestag
- Berlin
- SPD
- Manuela Schwesig
- Investment Program
- Tax Shortfall
- Olaf Lies
- Economic Situation
Detailed Solution to Tax Deficits
The proposed solution to the tax deficits of states and municipalities in Germany incorporates substantial federal tax reforms and compensatory measures designed to bolster public investment and fiscal stability.
- A key element of the immediate reform program the federal government adopted in May 2025 consists of tax relief measures, projected to cost €630 million in 2025, rising to up to €17 billion by 2029. Significant reforms include the reintroduction of declining balance depreciation methods for movable assets like equipment and vehicles acquired between July 2025 and January 2028, with a depreciation rate of up to 30%. Additionally, corporate income tax is set to decrease yearly starting in 2028, dropping to 10%—bringing it in line with the OECD average[1][2].
- These tax adjustments aim to encourage private sector investments and economic competitiveness, thereby boosting overall tax revenues and economic activity—potentially offsetting shortfalls at the state and local government level[1][2].
Compensatory Measures for Municipalities and States
- To make up for possible revenue losses due to tax cuts and shortages, the federal government has allocated substantial public investment funds. In 2025, Germany is set to invest approximately €110 billion from the core budget, plus a larger €500 billion infrastructure fund spread over 12 years. This fund focuses on transport, energy, digital networks, defense, and education—seeking to strengthen public infrastructure and services across all government levels, including municipalities and states[2][5].
- Concurrently, the government emphasizes stringent budget consolidation alongside these investments, suggesting a balance of reforms and fiscal responsibility to preserve financial stability in states and local governments[5].
Overall, Germany's approach includes phased tax cuts and enhanced depreciation incentives to stimulate private sector investments, along with generous federal public investment funds to compensate and support states and municipalities facing tax revenue shortfalls. This multipronged strategy aims to boost economic growth, secure jobs, and maintain public service quality at various governmental levels[1][2][5].
Vocational training policies in EC countries should be reevaluated to address the potential fiscal challenges resulting from the tax reforms and incentives for investments proposed by the federal government in Germany. A comprehensive approach will involve balancing tax cuts, depreciation incentives, and federal public investment to stimulate economic growth, while ensuring states and municipalities receive substantial compensatory measures to maintain financial stability. Efforts to bolster investment in vocational training programs are crucial to preserving the quality of public services and providing more job opportunities for the citizens of EC countries.
Given the ongoing discussions and negotiations in the Bundestag and Bundesrat, it is essential for political leaders to get involved in the policy-and-legislation process related to the investment program, ensuring that any decisions addressed in general news are tailored to benefit both the public and private sectors in EC countries, including their vocational training sectors. By addressing tax shortfalls and maintaining fiscal responsibility, EC countries will be prepared to participate in Germany's ambitious investment program and further strengthen economic ties between the member states.
