Bloomberg News

Richest German States Challenge System of Paying for Poor

February 05, 2013

The German state governments of Bavaria and Hesse announced plans to challenge the federal system of tax transfers to the country’s poorer regions, saying they’re being unfairly penalized for their relative wealth.

Bavaria, whose capital of Munich is home to Bayerische Motoren Werke and Siemens AG (SIE), and Hesse, where Deutsche Bank AG and the European Central Bank are based, are the two biggest per-capita contributors under Germany’s post-World War II system of financial redistribution among the country’s 16 states.

“We finance close to half of the transfers, that is nearly 10 percent of our state budget,” Horst Seehofer, Bavarian prime minister, told reporters today in the regional Hesse capital of Wiesbaden after a joint meeting of the two states’ Cabinets. “This lawsuit is an act of self-defense as no balance in the system could be achieved through negotiations.” Recipient states got 3.9 billion euros ($5.3 billion) from Bavaria in 2012, according to the regional government in Munich.

German Chancellor Angela Merkel’s Christian Democratic Union and its Christian Social Union sister party face electoral challenges this year to their respective rule in Hesse and Bavaria. They want a cap on transfers coupled with incentives for recipient states to strengthen their finances.

Running Up Debt

“We introduce debt ceilings in our constitution and have a financial rebalancing system that forces financially strong states to take up debt to pay for the others,” said Seehofer, who also leads the CSU, one of three parties in Merkel’s federal coalition in Berlin.

Baden-Wuerttemberg, Germany’s third-biggest contributor state per capita, didn’t join the lawsuit. The state’s Green Party-led coalition with the Social Democrats wants to negotiate a reform of the system that will remain in place until at least 2019.

The three contributor states transferred a total 7.93 billion euros to Germany’s 13 poorer states in 2012. The capital Berlin, one of three German city-states with Hamburg and Bremen, is the biggest net recipient, pocketing 3.32 billion euros, according to the statistics portal Statista.

Of Germany’s 16 states, six are ruled by coalitions led by Merkel’s party, or the CSU in Bavaria’s case, eight are run by coalitions led by the Social Democrats and one, Baden- Wuerttemberg, is governed by a Green state premier. Merkel’s CDU lost control of Lower Saxony in a regional election on Jan. 20; the SPD is in talks with the Greens to form a coalition there.

To contact the reporter on this story: Joseph de Weck in Berlin at jdeweck@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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