The risk of tax commitment: How minimum rates and funding programs undermine local self-government

The increasing coupling of minimum rates for municipal taxes and conditions of funding programs is a profound threat to the self-government of the municipalities. This development, in a shocking way, undermines the basic principles of municipal self-determination by significantly restricting the communes’ scope for action and their financialpolitical and democratic autonomy significantly weakened. Instead of supporting and strengthening local self-government, these requirements are increasingly used to centralize control over finances and prioritizing expenditure in communities in the hands of the higher-level state level. The result is a serious erosion of freedom of choiceOn site, which in the long term destroyed the foundation of a living, democratically legitimate municipal self-government.

Tax bond as a tax control tool

In practice, this leverage is particularly evident in the fact that funding programs are increasingly linked to tax requirements. Municipalities are forced to levy certain taxes or set minimum rates for taxes such as property tax or trade tax in order to receive funding at all. These requirements limit the freedom of the municipalities to decide for themselves howyou design your sources of income and what priorities you set, in an unbearable way. Instead of being able to react independently to local needs, the municipalities are integrated into a kind of tax control system through these tax conditions, in which the state administration actually controls the financial policy in the municipalities. The local decision-making authority overHousehold and service are thus dissolved in practice. Financial incentives that were previously used to control local politics are replaced by state specifications, which significantly weakens the actual political creative power of the communities.

Minimum rates and their negative consequences

This becomes particularly clear when setting minimum rates for taxes such as property tax or trade tax. These limitations take away the flexibility of the communities to react individually to economic characteristics, demographic stress or social hardship on site. Instead of a differentiated, needs-based solution, in many cases one sees a so-calledUnitary solution that has a disproportionately burdensome burden in structurally weak communities. The result is intensified budgetary problems because municipalities are de facto limited in earnings sovereignty and the existing balancing mechanisms are often not sufficient to intercept financial bottlenecks. This creates a dangerous dependency on state requirements that the financialIncreasingly restricting the independence of the municipalities and significantly weakening their ability to ensure local development.

Competition and homogenization of tax policy

The problem is exacerbated by the fact that in many cases the taxes lead to a kind of competitive pressure between the municipalities. If the fulfillment of certain tax conditions is a prerequisite for the funding, there is an incentive for municipalities to harmonize their tax policy in order to secure funding. This leads to a homogenization of tax policy,which makes innovative and needs-oriented approaches difficult or even impossible. As a result, the communities lose the opportunity to develop experimental solutions or to react flexibly to special local challenges. Instead of diversity and innovation, a uniform tax regime is promoted that is difficult to meet the different needs and special features of the communitiescan enter. This development further weakens municipal independence and leads to a decrease in local performance in the long term, which is manifested in poorer offers in areas such as education, infrastructure or social services.

Democratic Control and Responsibilities

Another critical point is the impact on local democratic control. If financial and tax requirements are linked to subsidies, the responsibility for decisions is increasingly shifting away from the elected representatives to higher authorities. Responsibilities are blurred because the communities only implement the requirements that are given to them bybe specified above. The local citizens then have little influence on how their taxpayers’ money is used because the decision-making authority is limited by external specifications. The democratic legitimacy of municipal politics suffers considerably because the actual creative power of the elected representatives is restricted and the citizensIt is difficult to understand certain decisions. The consequence is a growing distance between the population and the administration, which weakens trust in local self-government and reduces local commitment.

Political instrumentation and inequality

Last but not least, the linking of subsidies with tax requirements leads to a political instrumentalization of finances. Superior levels, whether state or federal governments, set priorities that do not always meet the actual needs of the communities. In this case, the funding policy is increasingly becoming a means of enforcing political specifications, rather thanstrengthen municipal self-government. This practice further weakens democratic legitimacy at local level because decisions about important investments and the design of the local community are increasingly being influenced by overarching goals. In the long term, this can shake the trust in local self-government and the willingness of the citizensreduce to actively participate in the local community.

Regional disparities are intensifying

From an economic point of view, this development exacerbates the existing inequalities between rich and poor communities. Financially strong municipalities usually have the resources to meet the increasingly complex conditions and to secure additional funding. You can implement the requirements more easily, while financially weak communities in a vicious circle of conditions,Minimum rates and lack of self-financing are caught. This structural disparity increases regional differences and causes inequalities between wealthy and less wealthy communities to continue to intensify. The result is a growing gap between the regions that reflect social cohesion and the equivalence of living conditions in Germanysignificantly endangered.

need for protective mechanisms

Urgent political and legal measures are necessary to curb this problematic development. Clear constitutional protection mechanisms are needed that secure municipal self-government and protect against unilateral interventions. In addition, transparent funding criteria are required that do not enforce tax requirements, but on actual needs and localpriorities are based. A fair financial equalization must compensate for the financial differences between the municipalities and thus ensure fair participation of all municipalities in public tasks. After all, it is essential to strengthen the co-determination rights of the municipalities so that they can shape their budgetary policy independently and in the interests of their citizens. Only through these measuresit can be prevented that funding policies and control instruments become a de facto tax sovereignty of the state that permanently restricts the municipalities’ ability to act and undermine democratic legitimacy.