Taken as a whole, the states are in a better financial position than the federal government. This is due, among other things, to the fact that the federal government has borne the bulk of the costs associated with both the pandemic and the energy crisis resulting from Russia’s war of aggression in Ukraine, and that it finances some of the states’ constitutionally mandated responsibilities. As a result, the federal government must either take on debt or cut back on necessary capital expenditures. This existing imbalance makes it necessary to restructure federal-state finances: the federal government and the states must once again assume financial responsibility for their respective constitutional duties.

Modernizing municipal financing is also essential to meet both the requirements of corporate tax law and the financial needs of municipalities. The trade tax must be replaced in a revenue-neutral manner while preserving municipalities’ right to set assessment rates, thereby stabilizing municipal financing. Such a reform would place municipal financing on a broader footing, reduce dependence on economic cycles, cut administrative burdens, and foster a stronger sense of identification among taxpayers with their municipalities. The current crisis has repeatedly exposed the weaknesses in municipal financing. Now is the time to tackle a reform of municipal finances and replace the trade tax.

Reduce the government debt-to-GDP ratio and comply with the debt brake

The federal budget will once again comply with the debt brake in 2023 as part of fiscal consolidation. The federal government should urgently use the debt leeway available under the debt brake to address the crisis and to facilitate and incentivize necessary public and private investments. Sound public finances are not only important for stabilizing private investment and ensuring strong economic growth in Germany; they are also a matter of intergenerational justice: Sound fiscal and budgetary policies take future generations into account and provide them with room to maneuver, rather than burdening them with debt and financial burdens.

An overview of the BDI’s demands regarding fiscal policy:

Consistently prioritize spending and create investment incentives

• Create appropriate tax incentives for investment, particularly with regard to digital transformation, climate protection, and a sustainable, reliable energy supply
• Further increase in federal investment spending
• Immediate and complete abolition of the solidarity surcharge. As a supplementary tax following the expiration of Solidarity Package II, it is no longer appropriate
• Increase corporate liquidity
• Avoid budget cuts that burden the economy or result in indirect tax increases

Reduce the government debt-to-GDP ratio and comply with the debt brake

• Sound fiscal and budgetary policy
• Strict prioritization of all public spending to comply with the debt brake
• Necessary budget cuts must not further weaken the competitiveness of the German economy
• A forward-looking fiscal policy that enables sustainable public budgets while ensuring compliance with the debt brake
• Reducing the government debt-to-GDP ratio

Reorganize federal-state finances and modernize municipal financing

• Reorganize federal-state finances and federal transfers
• Ensuring stable and crisis-resistant financing for municipalities
• Reform of municipal finances
• Integrating the trade tax into income taxes
• Replacing the trade tax in a revenue-neutral manner while maintaining municipalities’ right to set assessment rates