Emphasizes Compensation as Key Focus in Investment Plan - Pushes for Compensation in Investment Program Advocacy by Wüst
Fed vs States: Wuest Demands Compensation in Tax Reform Tussle
Hendrik Wuest, the Minister President of North Rhine-Westphalia (NRW), is taking a hardline stance against the federal government on a controversial tax reform. With the looming economic investment program, Wuest is insisting that states and municipalities should be fully compensated for the resulting revenue losses.
"The 'Konnexitätsprinzip' - or the one who orders pays - principle laid out in the coalition agreement is long overdue for application," Wuest declared in Duesseldorf. "We're not floating around like cream on the top. We're demanding full compensation."
As the states and the chancellor, Friedrich Merz (CDU), prepare to meet this week, Wuest remains optimistic about progress. "I'm feeling rather positive," he said. But, to secure an agreement by the Bundesrat session on July 11, the bill needs acceleration. "If we don't do it now, it'll end up in the conciliation committee."
Among the planned changes is improved tax depreciation for businesses and the gradual reduction of the corporate tax rate to 10 percent by 2032. However, municipalities will bear the brunt of the resulting revenue losses, with states and municipalities facing a collective loss of nearly 50 billion euros by 2029.
States, particularly NRW, will shoulder around 30 billion euros of this burden, with NRW's state budget alone facing a 3.7 billion euro hit without compensation. Municipalities will lose an additional 3 billion euros. Yet, Wuest believes the investment package won't push the budgets of states and municipalities into an untenable position during the third year of recession.
The debate goes beyond numbers as Wuest calls for swift action on the agreed special asset of 500 billion euros. Meanwhile, he expects the federal government to present a draft bill for reducing municipal debt before the summer break. If the old debt issue isn't resolved, many municipalities won't be able to invest.
With the NRW municipal elections on September 14th, Wuest underlines the urgency of breaking free from the debt burden. "Everything hinges on relieving the crushing financial strain," he warned. Wuest also cautioned the federal government that the investment and debt leeway weren't a quid pro quo for approving the immediate program.
Local authorities have echoed the call for compensation. According to leading associations of NRW's municipal governments, "he who decides on tax cuts must also bear the tax losses." The investment boost by the federal government, they caution, will be a test of the government's commitment to the coalition agreement. Indirect financing of the tax reform with municipal funds from the special assets for infrastructure and climate neutrality, they warn, would be a breach of promise.
In light of the heated negotiations, the current status of disputes between the federal government and the states regarding tax revenue compensation tied to the investment measures remains unclear. While the federal government is pushing ahead with legislation, there is no published evidence of an ongoing or resolved dispute between the federal and state authorities over the allocation or compensation of tax revenues related to the new investment program.
- The controversy over the tax reform in EC countries has sparked discussions not just in politics, but also in the realm of business and finance, as Hendrik Wuest, the Minister President of North Rhine-Westphalia, advocates for full compensation for states and municipalities who may face revenue losses due to the improved tax depreciation for businesses and the gradual reduction of the corporate tax rate.
- The demand for fair compensation in the tax reform tussle between the federal government and the states is not only about numbers, but also about upholding the principle of "he who orders pays," a sentiment echoed by local authorities in North Rhine-Westphalia, who warn against indirect financing of the tax reform with municipal funds from special assets for infrastructure and climate neutrality, which they consider a breach of promise.
