RHeinland-Palatinate is one of the economic winners of the corona pandemic. A comparatively poor federal state is becoming an above-average rich one. It is thus changing sides in financial equalization: the traditional recipient country becomes the donor. The final figures for the past year are not yet available. But it is an open secret in the finance ministries of the federal states: Rhineland-Palatinate is a paying country. After benefiting from 334 million euros in 2020, it had to forego a three-digit million amount last year. At the end of November there were reportedly already 155 million euros in his donor account. As in the city of Mainz, the total change of around 500 million euros can be attributed solely to one company and its tax payments. The vaccine manufacturer Biontech, which made a profit of more than 7 billion euros in the first three quarters of last year, already caused an unexpected rain of money in the state capital: Huge trade tax revenues turned an expected deficit into an increase of more than 1 billion in the city treasury in 2021 Euro.
The number of donor countries is traditionally manageable. Experience has shown that Bavaria, Hesse and Baden-Württemberg are among them, Hamburg mostly. North Rhine-Westphalia used to always be at the top, but was then relegated for a few years, but in 2020 Düsseldorf was back in the top group. In 2021, Rhineland-Palatinate rose, North Rhine-Westphalia apparently fell, albeit narrowly.
Meteoric rise for Rhineland-Palatinate
Bayern has already presented a forecast. According to this, the Free State again paid more than half into the financial power equalization of the federal states in the past year. “Bavaria is the largest paying country – according to the latest estimate, both in absolute terms at around 9 billion euros and in per capita terms at around 687 euros per inhabitant,” said Finance Minister Albert Füracker (CSU) of the German Press Agency. According to FAZ information, Hesse’s payment burden increased by around 1 billion euros last year compared to 2020 – to 3.55 billion euros. The per capita burden thus grew from 410 euros to 566 euros.
“The billing is significantly influenced by the meteoric rise of Rhineland-Palatinate to become a donor state in financial equalization,” it says in the circles of the federal states. According to the Bavarian Minister of Finance, around 17 billion euros were redistributed from financially strong to poor countries. In 2020 it was 14.8 billion euros. At that time, Bavaria had to forego around 7.8 billion euros. As in previous years, Berlin was by far the largest recipient country. The capital received 3.5 billion euros.
The state financial equalization system has been reorganized with effect from 2020. It now runs entirely through sales tax. The payments from the donor countries and the receipts from the recipient countries are no longer shown as such in the respective national budgets. Nevertheless, the core of the system has largely remained the same.
A reform for fairer financial equalization
The respective financial strength and a so-called indicator are decisive for the new cash flows. The revenues of the municipalities are taken into account somewhat more than in the past. As in the old system, the number of inhabitants is corrected to compensate: the city-states in particular are upgraded, but Saxony-Anhalt, Brandenburg and Mecklenburg-Western Pomerania are also artificially made a bit more populous than they actually are. Depending on the relationship between the financial strength index and the compensation index, there is a surcharge or a reduction in sales tax at the end. The gap between rich and poor federal states, including city states, is thus noticeably smaller. With its general supplementary allocations, the federal government ensures that the range narrows again.
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Wolfgang Scherf from the Justus Liebig University in Gießen examined the equalization shortly after the changeover. His conclusion is that financially weak countries achieve almost identical ratios between the financial strength index and the balance index in both the old and the new system. According to him, the range was ultimately between around 98 and 108 percent. His conclusion: “The reform has neither made the state financial equalization easier nor fairer.” The shift to the distribution of sales tax has increased the lack of transparency. The expansion of federal supplementary grants is also not progress. All in all, the defects in the financial equalization of the federal states were not only retained, but were in some cases even amplified. In financially weak countries in particular, efforts to increase economic power and the efficiency of tax administration are no longer worthwhile. Including supplementary federal grants, a “confiscatory level” is reached. The extent to which this thesis is correct can be checked by Scherf using the case of Rhineland-Palatinate.
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