At the request of the Rhineland-Palatinate Ministry of Finance, FiFo Cologne has examined the vertical components of regional financial equalisation in this German Land. In his report, FiFo researcher Eric Schuß focuses in particular on the marked fluctuations in the finances of municipalities and the Land as a result of the multiple crises since 2020, as well as the long-standing issue of low municipal property and business taxes in the Land. The report is now available as FiFo Report No. 36.

Germany's municipalities are deep in the red, but the union is demanding an 8 per cent pay rise for federal and municipal employees. How can this be squared? In an interview with Deutschlandfunk, Michael Thöne looks at the valid arguments on both sides of the bargaining table. The hefty packages of new public debt emerging from the coalition negotiations in Berlin are intended to pay for defence and infrastructure, but they will also – albeit deceptively – ease the fiscal pressure on all public spending. But collective bargaining cannot solve the actual economic problem: the worsening shortage of skilled labour must be addressed with structural solutions – through bureaucratic streamlining, the use of high-tech and through qualified immigration.

The reformed property tax is in force since 2025. North Rhine-Westphalia and two other Länder allow their municipalities to apply a lower tax rate to residential properties than to commercial properties. As a result, it is no longer possible to use the previous method of taking equal account of property tax revenue in municipal fiscal equalisation. However, fears that a new method would be complicated or that property tax B would even have to be removed from the financial equalisation system are unfounded. In FiFo Report No. 35, Eva Gerhards and Michael Thöne show that the new ‘one for all’ method actually makes this possible in a simple, efficient and equitable manner. The study also recommends a solution for the optional property tax C on vacant, ready-to-build-on land.

Many cities and municipalities are very active in the fight against climate change. But why? In an article on municipal climate protection in the just-published issue 1/25 of the Journal of Environmental Policy and Law (ZfU), Thomas Döring and Michael Thöne analyse this observation which is, at first glance, counterintuitive from a fiscal federalism perspective. On closer inspection, however, these activities are as economically well-founded as they are necessary – not least in view of the growing importance of municipalities as climate protection actors at the international level.

The European Commission has outlined the five reform objectives for the EU's future budgets and medium-term framework. The sixth objective, a bigger EU budget, is the proverbial elephant in the room. At a workshop of the European Committee of the Regions, Michael Thöne outlines how a stronger focus on European public goods could be organised and financed in an ever more federal EU. Many questions remain to be answered, not least the future role of traditional EU tasks such as cohesion policy.

The city council of Cologne is discussing the introduction of a local tax on disposable packaging for food and beverages intended for immediate consumption, based on the Tübingen model. The aim is to make reusable packaging more attractive and reduce litter on Cologne's streets. In an interview with WDR television, Michael Thöne predicts that such a levy would have a positive, albeit moderate, incentive effect. What is missing on TV: The levy should first and foremost be seen as a small tax, which in Cologne could generate an estimated 10 million Euros per year, but would also result in a sizeable administrative burden for the catering industry and the city.

The financial distress of German municipalities is closely linked to the upcoming federal elections. But it is not primarily a question of money. Rather, the central level should more often take responsibility for its own tasks instead of passing them on to the municipalities. In conversation with WDR, Michael Thöne stresses the need for structural reforms of social services with a view to municipalities. Municipalities must be able to focus more on their often neglected obligations in providing core local services. And the governance of an effective and efficient social policy cannot be reduced to the distant delegation of tasks without functioning connectivity. Modernising government also requires a continued development of the federal division of public tasks.

Monheim am Rhein has become famous and (temporarily) rich through a risky strategy. As an aggressive trade tax haven, the city has used its ideal location in the Düsseldorf and Cologne suburbia to generate far above-average revenues for many years. These were used to finance expenditures that went even farer beyond the normal municipal level. Accordingly, the city is now also record-breakingly in debt. Now in the crisis, the questionable municipal investment plans – after all, who still builds shopping centres these days? – should be scrapped, recommends Michael Thöne in DIE ZEIT (paywall).

A sovereign and free, competitive and sustainable Europe requires a fundamental modernisation of the EU. The EU budget and the Multiannual Financial Framework (MFF) for the years 2028 to 2034 are central to this. At the preparatory workshop of the European Parliament's Committee on Budgets on 7 November 2024, Michael Thöne outlines in his contribution which reforms on the expenditure side can strengthen the EU's original European tasks, where the revenues for this should come from and how the MFF needs to be structurally modernised in this process.