On 15 December 2006, the Bundestag and Bundesrat decided to establish a joint Commission on the Modernisation of Federation-Länder Financial Relations. Parliament adopted a motion tabled by the CDU/CSU, SPD and FDP ( 16/3885). The Left Party voted against the motion, whilst Alliance 90/The Greens abstained. The motions for amendment tabled by the Left Party ( 16/3888) and by Alliance 90/The Greens ( 16/3887) were rejected by a large majority in the Bundestag ( 16/74, pp 7393A-7411A). The Bundesrat voted unanimously in favour of an identical resolution (Bundesrat Printed Paper 913/06).
The Presidents of the Bundestag and Bundesrat established the Commission on 8 March 2007. SPD parliamentary-group chairman Peter Struck from the Bundestag and Baden-Württemberg Minister-President Günther Oettinger (CDU) from the Bundesrat were elected as chairpersons. The Bundestag and Bundesrat both delegate 16 members and 16 substitute members to the Commission. The resolution establishing the commission states that several of the members delegated by the Bundestag must be Federal ministers. Almost all of the Länder have sent their minister-presidents to the Commission. All Commission meetings are to be attended by four Members of the Land parliaments, who have the right to speak and table motions but no voting rights. In addition, the local authorities are to be involved "in a suitable fashion" (Composition of the Commission).
The Commission's mandate is to draft proposals on the modernisation of Federation-Länder financial relations, in order to ensure that these financial ties are adapted in the light of the changed context of growth and employment policy within Germany and abroad. The intention is for the proposals to strengthen the responsibilities of the regional and local authorities and ensure that they have the financial resources necessary for them to carry out their duties. The resolution establishing the Commission has an annex with an open list of topics. This list includes the topics of prevention and management of budgetary crises, critical review of tasks and standard-setting. It also encompasses the reduction of red tape and enhancement of efficiency, through, amongst other things, redistribution of tasks in the public sector. Also on the list are ensuring adequate financing for tasks and strengthening the autonomy of regional local authorities, reinforcing cooperation and easing the requirements for voluntary mergers between Länder, as well as grouping together services in specific policy areas and impacts on Federation-Länder financial relations.
The Commission on the Modernization of Federation-Länder Financial Relations has successfully completed its work. The members of the Commission, at their closed meeting on 5 February 2009, reached agreement in principle on key points and were able to agree the texts of the proposed amendments to the Basic Law at various working group meetings during the subsequent weeks and at a further Commission meeting on 12 February 2009. At the Co-Chairs’ proposal, the Commission then adopted a package of measures to reform Federation-Länder financial relations on 5 March 2009.
The centrepiece is the introduction of a new joint debt rule for the Federation and the Länder (federal states) which will come into effect in the 2011 budget year. In line with this rule, the budgets of the Federation and the Länder must generally balance without recourse to borrowing. Limited derogations from this rule are permitted. In order to facilitate compliance with this debt rule, five heavily indebted Länder will receive consolidation grants. A new Stability Council will monitor the financial management of the Federation and the Länder, particularly the consolidation measures adopted by the five recipient Länder (Summary of Decisions, in German).
The package contains proposals for the amendment of Germany’s constitution, the Basic Law, and ordinary legislation, together with explanatory memoranda for these proposed amendments, and a proposal for a resolution (Commission Printed Paper 174). At the final vote, with 31 members of the Commission present, the package was adopted with 26 votes in favour, three votes against (Alliance 90/The Greens, the Left Party, Mecklenburg-Western Pomerania) and two abstentions (Berlin, Schleswig-Holstein). The Federal Cabinet noted the proposals with approval on 11 March 2009. The legislative procedure commenced at the end of March 2009 with the first reading in the German Bundestag and has now concluded, with the second/third reading taking place on 29 May 2009 and second passage at the sitting of the Bundesrat on 12 June 2009.
The Commission proposes the following reforms:
New joint debt rule for the Federation and Länder (Article 109 of the Basic Law)
The Länder will adopt more detailed provisions in accordance with their constitutional competences.
If actual borrowing deviates from permissible borrowing, the difference must be held in a control account. The negative balance in the control account may not exceed 1.5% of GDP. Once this negative balance exceeds 1% of GDP, it must be reduced as economic conditions permit.
A decision adopted by a majority of Members of the Bundestag is required for exercise of the derogation rule in the event of natural disasters and extraordinary emergency situations.
Under a transitional rule in Article 143d, para. 1 of the Basic Law, the new provisions of Articles 109 and 115 of the Basic Law will come into effect in the 2011 budget year. Compliance with the requirement for a balanced budget is mandatory for the Federation from 2016 and for the Länder from 2020.
To support compliance with the aforementioned debt rules, five Länder will receive financial support, amounting to € 800 million per annum, for the period 2011-2019, i.e. a total of 7.2 billion (Bremen € 300 million, Saarland € 260 million, with Berlin, Saxony-Anhalt and Schleswig-Holstein each receiving € 80 million p.a.). The support will be financed on a 50-50 basis by the Federation and the Länder. The prerequisite for the granting of this financial support is compliance with a consolidation pathway which enables the Länder concerned to balance their budgets by 2020 at the latest and adhere to the new debt rule thereafter. Further details will be regulated in an implementing act to Article 143d of the Basic Law, with specific arrangements being fleshed out in administrative agreements between the Federation and the individual Länder.
In addition to the new debt rule, the introduction of a cooperative early warning system is proposed to prevent budget crises. A new Stability Council, comprising the Federal Finance Minister and the Finance Ministers of the Länder as well as the Federal Minister of Economics and Technology, will monitor the financial management of the Federation and the Länder and especially the progress being made by the above-mentioned five recipient Länder towards budget consolidation. To this end, the financial situation of the Federation and the Länder will be presented and discussed on the basis of reports every year. Should budget crises arise, the Stability Council will agree remedial measures. The Stability Council’s decisions will be published.
To increase efficiency in the tax administration,
At present, the Federation has legislative competence for insurance tax and is responsible for the assignment of the revenue accrued. It also has legislative competence for fire protection tax. The Commission proposes a new arrangement whereby the Länder’s current administrative competence for both these types of tax be transferred to the Federation in the interests of efficiency, but with responsibility for the assignment of revenue from fire protection tax remaining with the Länder. To safeguard revenue accruing from the fire protection tax, detailed regulations for the establishment and control of the assessment basis will be adopted.
To improve administrative cooperation in the field of information technology with a view to establishing a secure, efficient and cost-effective IT infrastructure for the public administration, amendments to the Basic Law, ordinary legislation and framework provisions established in inter-Länder agreements are proposed.
A new Article 91c of the Basic Law will establish the legal basis for cooperation between the Federation and the Länder in the planning, development and operation of the IT systems required for their effective performance. The Federation will be granted the competence to establish and operate a core network linking up the federal and Land IT networks; it will also be granted exclusive legislative competence to adopt more detailed regulations in this area.
An inter-Länder agreement will regulate the bases of cooperation in more detail, including in particular the establishment of an IT Planning Council as the coordination and steering body, which will also adopt decisions on IT interoperability and security standards. The legislative proposal for linkage of the federal and Land IT networks should include provisions on institutional structures, data exchange, procurement and funding.
The Commission regards benchmarking as a helpful tool in the modernization of the public administration. It proposes that a new Article 91d of the Basic Law be adopted to create a constitutional basis for voluntary cooperation between the Federation and the Länder on benchmarking in the administration, thus encouraging a willingness to carry out such benchmarking in Germany.
The Commission has agreed to support the draft Federal Cancer Register Data Act submitted to the Commission at the request of the Federal Ministry of Health and to propose its inclusion in the legislative procedure for stage 2 of the Federalism Reform. On the basis of this legislation, a National Cancer Register will be established which will contain cancer data for Germany as a whole and facilitate regional and inter-Länder studies. Any unresolved issues between the Federation and the Länder should be clarified during the legislative process.
The Commission proposes that the German Bundestag and the Bundesrat prepare a resolution for the downgrading of federal trunk roads which are no longer relevant to long-distance traffic. Following the completion of the Commission’s work, the Federation and the Länder should seek a prompt and mutually acceptable solution regarding the individual routes as well as agreement on a timescale and other downgrading and compensation modalities. Further procedural arrangements will also be established.
The current Article 104b of the Basic Law restricts the scope for the Federation to grant financial assistance to those areas in which the Federation has legislative powers. In light of the new provisions of Article 109 and Article 115 of the Basic Law, the Commission proposes lifting this restriction for the specific case of natural disasters or extraordinary emergency situations. This would ensure that as part of the efforts to manage such emergencies - e.g. the current financial and economic crisis - the programmes that are required to revitalize public investment activity in all sectors can be carried out with the Federation’s support.