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Unformatted text preview: ed states. Lastly, we consider recent and ongoing processes for reforming intergovernmental
fiscal arrangements in these countries, after which we briefly describe certain key components of existing transfer
programs. 3.1. Overview
Germany has an inter-linked intergovernmental system in which the Länder governments are an integral part of the
federal decision-making process because of their presence in the Bundesrat, the second chamber of the federal
Parliament. The members of the Bundesrat are members of the Länder governments. All federal laws affecting the
Länder, including all decisions regarding intergovernmental finances, require the approval of the Bundesrat. It comes as
no surprise that the term cooperative federalism is often used to describe intergovernmental relations, which are
remarkably transparent, in Germany. Fiscal balance is achieved and maintained within this framework thanks to a
mechanism (see Otto Beierl) that adjusts the revenue of the two orders of government to place them in a similar budget
situation. The need to ensure fiscal balance between the federal government (Bund) and the states (Länder), enshrined
in the Constitution (Basic Law or Grundgesetz), is therefore central to German institutional mechanisms. Paul Bernd
Spahn mentions: “According to the objectives of the constitution, there is no ‘vertical fiscal imbalance’ in Germany as
exists in other federations with exclusive tax assignments (such as Australia)” (p. 41).
In Australia, intergovernmental financial relations were radically changed by the reform implemented in 2000, which
David Collins describe in detail. The states lost some fiscal autonomy by abandoning taxes (A$3.5 billion or close to
10% of their tax revenue). In return, they obtained a veto over any change to the new goods and services tax (GST) that
is paid in full to the states and, overall, obtained a fiscal base that is more robust and that provides a better growth
potential to fund their programs, the fields of jurisdiction in which the States spend the most being education and health.
There is a substantial volume of transfers. This year, transfers from the Commonwealth to the states and local
administrations are estimated at about A$51 billion of which close to 60% ($30 billion) is unconditional and paid
according to an equalization formula. This amount exceeds the tax revenue of the states and local administrations.
Belgium became a federation only recently, in 1993. Decentralization of jurisdictions to the Communities and Regions,
two co-existent types of orders of government, is accordingly relatively recent, and the question of their funding is a
pressing issue. The Regions have only a relatively low proportion of own-source revenue compared to their federal
transfer revenue. Negotiations in this regard are frequent.
In the United States, the states enjoy substantial fiscal autonomy. The states’ share of income tax is growing and the
federal government does not apply a general consumption tax. All transfers...
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