refugee crisis

A Fiscal Tug-of-War

Migrants queue to enter a tent_jan 2016_berlin_REUTERS
Germany is struggling to accommodate its influx of refugees.
  • Why it matters

    Why it matters

    The German states claim they will face fiscal problems if Berlin doesn’t pitch in more aid for refugees.

  • Facts

    Facts

    • States saw a total surplus of €2.8 billion in 2015. They were expecting a deficit of €6.8 billion.
    • The states will receive more than €20 billion from the federal government in 2016; about half goes to refugees.
    • Even with a €2.2-billion surplus, Bavaria could be forced to run deficits or raise taxes to deal with the refugee crisis.
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    Audio

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Germany’s regional governments insist the refugee crisis could wreck their budgets if they don’t receive additional assistance from the government.

Though the states are in their strongest fiscal position since 2007: Germany’s 16 states generated a collective budget surplus of €2.8 billion ($3 billion) in 2015, instead of an anticipated deficit of €6.8 billion, according to a finance ministry report obtained by Handelsblatt, but still warn they need help.

Chancellor Angela Merkel and the leaders of the 16 states agreed on Thursday to develop a joint plan to better facilitate the integration of refugees. There’s disagreement, however, on how to split the bill. The government has allocated €8 billion for 2016, which the states say is not enough.

“The states and municipalities are currently taking on the lion’s share of the public costs, while the federal government makes only a modest contribution,” Torsten Albig, the premier of Schleswig-Holstein, told Handelsblatt.

“Integration policy is a national task for the entire country and not a private issue of the states and municipalities.”

Torsten Albig, premier, Schleswig-Holstein

The premier of Brandenburg, Dietmar Woidke, believes the federal government should pick up half the tab. According to Mr. Woidke, Berlin is currently footing only 20 percent of the costs associated with the refugee crisis.

“That really brings all of the states in a difficult fiscal situation,” Mr. Woidke told Handelsblatt.

Even wealthy Bavaria, with a surplus of €2.2 billion, could face budgetary problems due to the refugee crisis. The state is planning to spend billions on integrating refugees in the coming years and has already had to draw €500 million from its reserves to cope with the crisis, according to Bavarian premier Horst Seehofer.

Over the long term, the state will have to reallocate funds within the budget, borrow money or raise taxes, “which I would prefer not to do,” Mr. Seehofer said.

 

seehofer_jan2016_Michael Kappeler_dpa
Horst Seehofer wants to avoid raising taxes. Source: DPA/Michael Kappeler

 

The premier of Rhineland-Palatinate, Malu Dreyer, has called for the federal government to increase its support for the states by €5 to €7 billion. Ms. Dreyer joined the federal ministers of labor, family and integration in presenting a 12-point list of funding requests.

The regions want the government to pay an additional €1 billion annually to expand daycare services and allocate more money for state-supported housing, among other requests.

Finance minister Wolfgang Schäuble, however, drew a red line with the states and federal ministries during a cabinet meeting last Wednesday. According to government sources, Mr. Schäuble made clear the €12 billion federal surplus is available for new funding requests only under limited circumstances.

Half of the surplus has already been appropriated in the 2016 budget, and Mr. Schäuble wants to keep the other half in reserve to cover special contingencies related to the refugee crisis. The finance minister has insisted that the states shoulder certain costs, such as training new police officers.

The Christian Democrats’ Eckhardt Rehberg believes the central government is already contributing more than it should. In 2016, the federal government will “more than meet its responsibility and substantially relieve the states and municipalities,” Mr. Rehberg said.

According to Mr. Rehberg, the federal government is already transferring more than €20 billion to the states this year, about half of which is refugee and asylum aid. From 2010 through 2016, Berlin will transfer more than €150 billion to the states for investments, social projects and education.

 

Federal State-funding budget surplus or deficit refugees

 

“Integration policy is a national task for the entire country and not a private issue of the states and municipalities,” said Mr. Albig, the premier of Schleswig-Holstein.

This federal support comes at a time when 10 of Germany’s 16 states have balanced their budgets. North-Rhine Westphalia managed to slash its deficit by two-thirds, while Bremen and Saarland reduced their deficits by half. Only Rhineland-Palatinate failed to noticeably reduce its obligations.

The government in Berlin is seeking to reduce the burden on the states by slowing the flow of refugees entering the country. Under a new package of asylum rules agreed by the leaders of the grand coalition, refugees with so-called “subsidiary protection” will have to wait two years before they can send for their families. The full Cabinet will consider the measure on Wednesday.

Germany grants subsidiary protection to refugees who don’t officially qualify for asylum, but can’t be deported because their lives are at risk in their home countries.

It’s unclear whether or not the two-year waiting period will have any real impact on the number of refugees entering Germany. Of the more than 280,000 asylum applications decided on by German authorities last year, only 1,700 were granted subsidiary protection.

During that period, Syrians were granted blanket protection. Their cases are now being reviewed on a case-by-case basis, however, and subsidiary protection could play a larger role moving forward. In 2014, Syrians brought 3,000 family members to Germany.

 

Woidke_nov 2015_Bernd Set_picture alliance_dpa
The premier of Brandenburg, Dietmar Woidke, believes the federal government should pick up half the tab. Source: DPA

 

“We expect that when there’s peace in Syria, when IS has been defeated in Iraq, that you will return to your home country with the knowledge that you’ve gained,” Chancellor Angela Merkel said over the weekend regarding refugees.

Under the new asylum package, the North African countries of Algeria, Morocco and Tunisia would also be declared safe countries. Migrants from these countries would be subject to an expedited process that would normally end in deportation.

Bavaria wants a handful of other countries declared safe for return as well – Armenia, Bangladesh, Gambia, Georgia, India, Mali, Mongolia, Nigeria, Moldova and Ukraine.

The coalition has the support of Winfried Kretschmann, the premier of Baden-Württemberg, in declaring the North African countries safe, according to Peter Altmaier, the chancellery’s chief of staff.

The support of Mr. Kretschmann’s Green Party is needed in Germany’s upper house of parliament, the Bundesrat, to pass the measure.

The federal government is also trying to reach a deal to deport refugees with unknown countries of origin to third parties such as Turkey, according to Mr. Altmaier. Many refugees destroy their documentation, making it difficult to determine where they are from.

 

Sven Afhüppe is co-editor in chief of Handelsblatt. Daniel Delhaes reports on politics, transport and airlines from Handelsblatt’s Berlin office. Frank Specht is based at Handelsblatt’s Berlin bureau, where he focuses on the German labor market and trade unions. Alex Schrinner writes about tax issues. To contact: afhueppe@handelsblatt.com,  delhaes@handelsblatt.com, specht@handelsblatt.com, schrinner@handelsblatt.com

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