Tax losses due to the corona pandemic: protective shield planned for municipalities

Finance Minister Olaf Scholz plans to relieve municipalities of 57 billion euros. Criticism of the plans comes from the CDU.

Olaf Scholz (SPD) speaks to media representatives at SPD party headquarters Photo: Kay Nietfeld/dpa

Federal Finance Minister Olaf Scholz (SPD) wants to stretch a protective umbrella totaling nearly 57 billion euros over Germany’s municipalities by the end of the year. The burden is to be shared by the federal government and the respective responsible states, as reported by the Dusseldorf-based "Rheinische Post" (Saturday) with reference to a concept paper of the Federal Ministry of Finance available to it.

In a statement at Berlin’s Willy Brandt House, Schulz said on Saturday that corona-related revenue shortfalls for municipalities should not lead to investments being put on hold. Overall, cities and municipalities would probably have around twelve billion less in trade tax revenue in 2020. The municipalities welcomed the proposal as a "positive signal" and called for the announced rescue package to be introduced quickly. Criticism of the proposal came from the CDU.

According to the report, the protective shield is to consist of two components: acute emergency aid, which is open to all municipalities and is intended to compensate for the collapsing trade tax revenues in times of the Corona crisis, and old debt assistance for highly indebted cities and municipalities. "This protective shield is intended not only to get cities and municipalities through the current difficult situation, but also to permanently put them in a position to perform their tasks even better," Scholz told the newspaper.

According to the tax estimate, municipalities will lose 11.8 billion euros in trade tax revenue this year. The federal government does not want to leave the cities alone with this problem, the paper says. "All affected municipalities will therefore be given the opportunity to receive lump-sum compensation for their lower trade tax revenues.

Reactions mixed

The federal government and the respective state will each bear half of the costs for this compensation," Scholz’s proposal reads. The federal government should also assume half of the old debts of 2,000 particularly indebted municipalities nationwide, he said. These were put at 45 billion euros in 2018.

The budgetary spokesman for the CDU/CSU parliamentary group, Eckhardt Rehberg, reacted critically and spoke of a "purely party-political push." Scholz would have done well to inform the coalition partners CDU and CSU beforehand, he said in Berlin. "Under the guise of the Corona crisis, Scholz wants to push through his old concept for taking over old municipal debts, which previously had no chance of being implemented."

According to the federal order, the federal states are still solely responsible for their municipalities, Rehberg emphasized. They would have to incur debts in the same way as the federal government if necessary. He does not see how Schulz wants to get the two-thirds majority for his plans in the Bundestag, which is necessary for an amendment to the Basic Law. He said that the plan could not be seriously assessed before a cash audit.

Meanwhile, the Association of Towns and Municipalities is pressing for the rapid introduction of a rescue package. Chief Executive Gerd Landsberg told the newspapers of the Funke Mediengruppe that they were counting on the measures being implemented in law before the end of the summer. The priority is to invest in infrastructure, climate protection measures and accelerating digitization.

Bavaria critical, NRW in favor

Landsberg also considered it positive that the problem of old debts is to be tackled with the participation of the relevant states. Particularly the highly indebted municipalities in North Rhine-Westphalia, Rhineland-Palatinate and Saarland, which were already in a difficult situation before the crisis, could then invest in the future.

Reactions from the German states have been mixed. Bavaria’s Finance Minister Albert Furacker (CSU) said that federal assistance was desirable, "but only with clear coordination with the states and without linking it to the repayment of old debts."

North Rhine-Westphalia, on the other hand, wants to cooperate with Scholz. "For us, it remains true that if the federal government creates an old debt regulation, we as the state of North Rhine-Westphalia will make a substantial contribution to a tailored solution for "our" municipalities," Finance Minister Lutz Lienenkamper (CDU) said on Saturday in response to a question.

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