• P a r t ic ip a t io n in le g is la t io n

• P a r t ic ip a t io n in le g is la t io n

T h e c o n s t i t u t i o n g i v e s t h e L a n d e r in p r i n c i p l e a g u a r a n t e e d r i g h t t o participate in legislation. This means, firstly, that the Lander have their o w n l e g i s l a t i v e p o w e r s . S e c o n d l y , it m e a n s t h a t t h e L a n d e r m u s t b e

a l l o w e d t o p a r t i c i p a t e in t h e l e g i s l a t i v e p r o c e s s a t f e d e r a l l e v e l.

German Fiscal Decentralization

In G e r m a n y t h e L a n d e r c o l l e c t t h e t a x e s . T h i s r e v e n u e is d i v i d e d in different ratios depending on which kind of tax with the different levels of

g o v e r n m e n t , i n c l u d i n g t h e l o c a l a u t h o r i t i e s a n d t h e n a t i o n a l le v e l. T h e l a t t e r allocates most of the tax revenues but this is then redistributed to the Lander as the r e g i o n a l g o v e r n m e n t s a r e r e s p o n s i b l e f o r t h e d e l i v e r y o f p r o g r a m s . F u r t h e r m o r e , in

G e r m a n y , t h e r e is a r e - d i s t r i b u t i o n b e t w e e n t h e s t a t e s ( L a n d e rfin a n za u sg le ic h )

d e p e n d i n g o n t h e s o c i o - e c o n o m i c s i t u a t i o n in t h e r e s p e c t i v e s t a te . T o d a y t h e Federation and the Lander share the most important sources of revenue jointly and finance an increasing number of tasks jointly.

There are four principal issues to which the constitutional rules on public finances in G e r m a n y a p p l y :

• Which level of government must finance which functions? In a f e d e r a l r e g i m e , a s i n o t h e r r e g i m e s , t h e r e s p o n s i b i l i t y f o r a

governmental function and the responsibility for financing that function must lie in one hand. Neither the Federation nor the Lander may finance

projects that do not fall within their sphere of administrative responsibility. S o t h e r e is in p r i n c i p l e a c l e a r - c u t d i v e r s i f i c a t i o n o f t a s k s a s s i g n e d t o t h e

d i f f e r e n t l e v e l s o f g o v e r n m e n t , b u t t h e r e a l s o is a g r e y z o n e , p a r t l y nebulous, serving as a flexible political instrument on the spot, partly

G e n ie in sc h a ftsc iu jg a b e ii ” (“common tasks”) or other rules of the fiscal part of the constitution. Nevertheless t h e r e is a p r i n c i p l e in G e r m a n y : T h e L a n d e r a r e a u t o n o m o u s in d r a w i n g u p

i n s t i t u t i o n a l i z e d in t h e s o c a l l e d “

and managing their budgets and are answerable only to their parliaments. It is c l e a r f r o m t h i s t h a t t h e F e d e r a t i o n h a s n o r i g h t w h a t e v e r t o i n t e r v e n e

in s u b - n a t i o n a l b u d g e t s . B u t t h e b u d g e t s o f t h e L a n d e r a c c o u n t f o r a b o u t

50 % of public spending by political subdivisions and thus constitute a highly relevant factor with reference to the Maastricht criteria.

Vol. 16, No. 2 December 2007 © Centre for Indonesian Accounting and Management Research Postgraduate Program, Brawijasa lJnivcrsit\

The International Jo u rn a l o f A cco u n tin g a n d B u sin ess Society

• W h o p a sse s w h ic h ta x la w s - th e fe d e r a l s ta te o r t h e c o n s titu e n t s ta te s ?

T a x la w is in f a c t l a r g e ly f e d e r a l la w . T h e p o w e r s t o p a s s ta x l a w s a r e assigned as follows:

o The Federation has exclusive power to legislate only on customs duties and fiscal monopolies (Article 105 paragraph 1 GG, Customs Law, Customs Tariff Law, General Customs Regulations, and Federal S p i r i t s M o n o p o ly ) .

o T h e F e d e r a t i o n h a s c o n c u r r e n t p o w e r to l e g i s l a t e o n a ll o t h e r t a x e s (Article 105 paragraph 2 GG).

T h i s l a s t p r o v is io n is o f m a j o r p o l i t i c a l a n d le g a l s i g n i f i c a n c e .

o In c o n s e q u e n c e , th e L a n d e r h a v e s c a r c e l y a n y e x c l u s i v e p o w e r s to l e g i s l a t e o n ta x e s . T h e y h a v e p o w e r t o le g i s l a t e o n lo c a l e x c is e t a x e s a s l o n g a s t h e s e a r e n o t id e n tic a l w i t h t a x e s im p o s e d b y f e d e r a l l e g i s l a t i o n

(Article 105 paragraph 2a GG). o

B u t , t h e f i r s t i m p r e s s i o n is o f t e n w r o n g . T h e L a n d e r a r e b y n o m e a n s excluded from fiscal sovereignty. Article 105 paragraph 3 guarantees t h e m t h e r i g h t to p a r t i c i p a t e t h r o u g h t h e B u n d e s r a t , t h e c h a m b e r o f p a r l i a m e n t in w h i c h t h e y a r e r e p r e s e n t e d . F e d e r a l l e g i s l a t i o n o n t a x e s w h o s e r e v e n u e a c c r u e s w h o l l y o r in p a r t t o t h e L a n d e r o r c o m m u n e s r e q u i r e s t h e c o n s e n t o f t h e B u n d e s r a t . In t h i s w a y t h e L a n d e r a r e a b l e t h r o u g h a m a j o r i t y v e t o t o i n f l u e n c e t a x l e g i s l a t i o n in t h e i r f a v o r a n d t h i s v e t o is a n a b s o l u t e v e t o ! W i t h o u t c o n s e n t t h e l a w c a n n o t p a s s .

H o w is t o t a l s t a t e r e v e n u e d i v i d e d u p b e t w e e n t h e d i f f e r e n t l e v e l s ? The allocation of revenue determines both the financial, the economic and

fiscal policy scope available to the federal state and the constituent states as well as their interaction on fiscal policy. One may distinguish between separate or combined revenue allocation systems, with separate allocation systems generally affording a greater degree of autonomy and/or greater

i n c e n t i v e t o s e c u r e an a d e q u a t e a m o u n t o f t a x r e v e n u e . T h e p u b l i c f i n a n c e r e f o r m in G e r m a n y in 1 9 6 9 c r e a t e d a c o m p o s i t e s y s t e m

of separate and combined revenue allocation with the aim of maximizing t h e b e n e f i t s a n d m i n i m i z i n g t h e d r a w b a c k s o f b o t h s y s t e m s . In G e r m a n y , o n l y a b o u t o n e q u a r t e r o f t a x r e v e n u e is n o w a l l o c a t e d s p e c i f i c a l l y t o p o l i t i c a l s u b d i v i s i o n s . T h e r e m a i n d e r is a l l o c a t e d t o t h e t h r e e l e v e l s o f government according to a pre-determined formula. The powers of the

c o n i n i u n e s t o i m p o s e a n d c o l l e c t t a x e s a r e n o t i n h e r e n t b u t a r e a s s i g n e d to t h e m u n d e r t h e l e g i s l a t i o n o f t h e L a n d e r . T h e y c o l l e c t lo c a l t a x e s u n d e r

14 A s m e n t i o n e d b y G e r m a n Federal M in istry o f F in a n c e , 2 0 0 7

2 December 2007 © Centre for Indonesian Accounting and Management Research

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16. No.

Postgraduate Program, Brawija\a Uni\ersit\

62 A C r i s is o r C r itic a l D e v e l o p m e n t ...

t h e i r b y - l a w s . H o w e v e r , t h e r e v e n u e f r o m t h e s e t a x e s is n o t o f g r e a t significance, amounting as it does to less than 5 % of the aggregate revenue accruing to local authorities. The communes and associations of communes are given a percentage of the share taken by the Lander of the t o t a l r e v e n u e f r o m j o i n t t a x e s . T h i s p e r c e n t a g e is s e t b y L a n d e r l e g i s l a t i o n . T h e c o m m u n e s a l s o r e c e i v e 15 % o f t h e r e v e n u e f r o m i n c o m e a n d corporation tax and 2.2

% of VAT revenue for the whole of Germany.

Trade tax and real property tax receipts accrue to the communes as well as the revenue from local excise taxes which, as already stated are hardly significant. However, the Federation and the Lander receive a share of trade tax receipts through an apportionment.

• T h e r o le o f th e f in a n c ia l e q u a liz a t io n s y s t e m

Despite the offsetting or leveling effects of tax revenue allocation there are still marked differences in the financial endowment of individual Lander. This

disadvantages, to weak infrastructure, or to misdirected policy decisions by a regional government. To lessen the impact of this, Germany has a very complex system of horizontal and vertical financial equalization. As it is closely linked to

may

be attributable- to geographical

a g g r e g a t e s t a t e s p e n d i n g a n d r e v e n u e it i s a k e y p a r a m e t e r in t h e f e d e r a l

c o n t e x t t h a t p l a y s a f r e q u e n t l y d e c i s i v e p a r t in a l l c o o r d i n a t i o n p r o c e s s e s . W h e r e t h e i n d i v i d u a l t a x r e c e i p t s o f t h e c o m m u n e s a r e i n s u f f i c i e n t to enable them to discharge the functions assigned to them, the Lander are primarily

financial resources (communal financial equalization).