Under the present arrangement, money is redistributed to needier state governments from those with higher tax income bases. The post-Second World War system was intended to equalise the country and was a founding principal of fairness after the years of Nazi tyranny.
Yet some of Germany’s richer states feel the system has become a lavish gesture of solidarity they can no longer afford. Hessen and Bavaria have now gone to the Constitutional Court seeking to have the practice overturned. The move is popular with the electorate of both states, and is supported by the equally wealthy Baden-Wuerttemberg, though it did not sign up to the legal action.
All three states say there is a certain irony in the fact that they must cut back on social projects in order to fund the exact same projects in other states,
“The lawsuit before the court is an act of political self-defence,” said Volker Bouffier, the premier of Hessen, which has the financial centre of Germany, Frankfurt, within its borders.
Between 1995 and 2007, Bouffier’s state of six million people paid out €34.5 billion (about £29bn) to less well-off areas.
And Bavarian premier Horst Seehofer said: “It can’t be right that 10 per cent of our budget ends up in other states, which then pay for things we ourselves can’t afford.”
He said that over the last 17 years, Bavaria’s 12.5 million citizens saw €41.2bn in state tax revenues transferred elsewhere.
Over the same period, Baden-Württemberg’s nearly 11 million residents saw €34.3bn transferred. State premier Winfried Kretschmann called the system “unfair and stupid”.
Bavaria and Hessen are both run by Chancellor Angela Merkel’s centre-right coalition and both are scheduled to hold regional elections in September, when Germany also will elect a new federal parliament.
Many of the beneficiaries of this enforced largesse are the poorer eastern regions which once constituted the former communist German Democratic Republic. More than two decades after reunification, they lag in industry, employment, people and allure, yet money continues to flow into them.
However, the biggest recipient of all is Berlin, broke to the tune of around €70bn and rising.
The wealthier states, whose lawsuit was launched yesterday, say the idea behind the money redistribution – that all German citizens should have a minimum standard of living, independent of their state’s financial condition – was sound at the time it was conceived in the early 1950s.
Problems really began in 1995, when Germany was reunited and five former East German states, economically wrecked by decades of mismanagement, needed urgent propping up.
Mr Seehofer said: “How can it be that the budgetary brakes are being applied in Germany, all while the wealthiest states have to go into debt just to make financial transfer payments?
“Whether for schools, universities, police, culture, affordable housing or social welfare, even the richest German states have been pinched in the last half-decade, and are having trouble making payments.”
Hessen and Baden-Württemberg said they would prefer an “incentive-based system” which rewarded areas that came up with new ways of revenue raising.
“Whoever works hard is punished and has to pay for it, while the states that don’t improve their tax revenue base have nothing to fear, no consequences,” Mr Seehofer and Mr Bouffier said at a joint press conference earlier this month.
Bavaria was a receiver of aid until 1993 when its heavily agriculture-dependent economy shifted to more incentives for businesses, particularly in the high-tech field, and Munich opened its new airport, now one of the busiest in Europe.