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Unformatted text preview: cism of the German Finanzausgleich and of the equalizing federal grants programs, it is not
surprising that there is a host of proposals for reform. However, given the political importance of this issue, it is also
understandable that such propositions can hardly reckon to gain broad support because they typically question acquired
financial positions relative to the national average.
This is not the place to discuss reform proposals at length. However, a broad outline for reform of the German financial
machinery may be given, which takes into account both the criticisms of the Constitutional Court and some principles of
“competitive federalism” without abandoning the idea of interjurisdictional solidarity. The Constitutional Court has mainly criticized the lack of clear criteria for defining „special burdens“ and has asked for
more transparency in intergovernmental fiscal relations. If this is taken seriously, there is a need to define clear criteria
for both vertical and horizontal equalization. It is unclear in particular how to define criteria for the sharing of resources
between the federal government and the states. The Court reckons that this would be possible on the basis of objective
data, which is likely to be an illusion. It is impossible, for instance, to evaluate the need for defense at the central level
against education at the state level without a political process and conforming value judgments. Need criteria are more
easily established at any one subnational level among entities with similar responsibilities. For instance, it is feasible to
define criteria for distributing resources for primary education among states: number of children in school age; studentteacher ratios; and so forth.
However, there is a clear constitutional dilemma here: While the German constitution asks for a quantitative approach
for sharing resources at the vertical level, where it is virtually impossible, it prescribes population as the sole criterion for
distributing resources horizontally,28 where a quantitative needs-oriented approach would in principle be possible.
Moreover, since horizontal equalization is exclusively confined to fiscal capacity, not expenditure needs, the Court
requests that alien elements that have crept into the system (such as bonuses for states with sea harbors) should either
be eliminated, or if accepted in principle, be rendered more general. In this case, other types of “special burdens” that
may be warranted would have to be considered. It would ultimately lead to adopting the Australian philosophy of
equalization.29 Given the tradition of intergovernmental fiscal relations in Germany, it is highly unlikely that the legislature
would follow this avenue and take on a more comprehensive approach.
If one were to follow the Australian road however, at least in principle, equalizing grants would have to be designed to
take into account (1) the relative fiscal position per capita for all current revenue; (2) relative need criteria;...
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