German cabinet adopts fiscal reform

The fiscal equity reform approved by the German government on Wednesday will still require two-thirds majorities in both chambers of parliament before going to effect. The changes come ahead of German elections set for 2017.

In discussion with state premiers at the end of last week, German Chancellor Angela Merkel described the preliminary deal reached as a "giant step" forward.

The premiers' current spokesman, Mecklenburg-Western Pomerania's Erwin Sellering, whose Social Democrats clung to power in a recent state election, said he expected the package would soon to be finalized.

From 2020, Germany's federal government is to transfer an extra 9.7 billion euros ($10.3 billion) to the 16 states, which have long complained that Berlin burdened them with new tasks, such as child care, without adequately reimbursing them.

Closer scrutiny

In exchange for the extra billions, the federal government is to get more intervention rights, including closer scrutiny of spending in the regional states or Länder - a persistent call from federal auditors.

Likewise, the federal government will invest billions to help upgrade derelict schools, gain the prerogative to coordinate tax collecting and invest in public online services for residents to ensure internet service quality even in remote areas.

A federal corporation is to be formed to run and upgrade Germany's autobahn [motorway] network, spanning 13,000 kilometers (8,100 miles), allowing private investment only for specific projects.

Germany's DGB trade union federation wrote to premiers in early December, demanding they hinder highway privatization, saying "every infrastructure must remain wholly, permanently and unalienable property of the state."

Boosts for small states

Two of Germany's smaller states, Bremen and Saarland, are to each receive 400 million euros annually to lower their disproportionally high levels of public debt and to repair their economies.

From 2020, a new "Stability Council" will oversee Germany's attempts at federal and state levels to reign in deficit spending.

Last month, Germany's Federal Audit Office said federal transfers to state governments and their municipalities totaled 71 billion euros in 2016.

Federal fiscal transfers for the accommodation and integration of asylum seekers by municipalities amounted to 20 billion euros, said chief auditor Kay Scheller.

Germany's existing "Fiscal Equalization Scheme," and its post-reunification tax revenue transfers to Germany's eastern states, are scheduled to run out in 2019.

ipj/sms (Reuters, dpa)