Fight for tax money: Federal and state governments are fighting over their financial future!

Fight for tax money: Federal and state governments are fighting over their financial future!

What's going on in German politics right now? On the way to finding a solution to the complicated challenges of tax losses, the federal and state governments are faced with a shambles. On June 18, 2025, the heads of government of the federal states gathered in Berlin to discuss the federal investment program and the associated severe loss of revenue under the chairmanship of Chancellor Friedrich Merz (CDU). Many are pessimistic: Finance Minister Lars Klingbeil (SPD) does not expect an agreement in the negotiations, which would be urgently needed to improve the financial situation of highly indebted municipalities.

The numbers speak for themselves: loud Radio Herford The losses total around 48 billion euros - 13.5 billion euros for the municipalities, 16.6 billion for the federal states and 18.3 billion for the federal government itself. Given this sum, the demand for financial compensation from the states is understandable. North Rhine-Westphalia's Prime Minister Hendrik Wüst (CDU) has taken a clear position and is calling for full compensation or at least up to 90 percent in order to relieve the budget situation.

Investments with ulterior motives

The federal government is planning various tax reliefs for companies, including expanded depreciation options for machines and electric vehicles. This is intended to stimulate investment and support the weakening economy. But a fatal downside effect cannot be overlooked: the federal states support these tax reliefs, but must make it clear that they cannot be left with the costs, as Prime Minister Wüst said ZDF emphasized. The draft to reduce corporate tax from 2028 is also being viewed critically as, in combination with the risks of insolvency and the ongoing economic stagnation, it could completely overburden municipalities.

A quick compromise could tip the scales: The state leaders insist that approval of the tax package in the Federal Council is not possible without financial compensation payments. Otherwise, individual states will be looking for a permanent mechanism for automatic compensation payments to avoid such financial imbalances in the future.

Voices from politics

The discussion is intense and opinions differ. Manuela Schwesig, the Prime Minister of Mecklenburg-Western Pomerania (SPD), has criticized the unequal distribution of the financial burden as unfair. Other state leaders have also expressed concerns that the federal government wants to unilaterally shift the burden of economic recovery onto the states and municipalities. The situation is further complicated by the difficult international economic conditions, not least increased tariffs on steel and aluminum from the USA, which puts additional strain on the situation for German manufacturers.

There is a Federal Council meeting on July 11th that could be crucial for the final decision. The aim is to reach an agreement before the summer break in order to avoid cumbersome mediation procedures. The exchange between the actors remains constructive, as Finance State Secretary Rolf Bösinger describes. But whether the federal government will really be able to close the financial gaps remains questionable. It is to be hoped that a good hand will be shown at both the federal and state levels to overcome this crisis.