Bavaria, Hesse Challenge German Fiscal Redistribution in Court

The governments of Bavaria and Hesse, two of Germany’s richest states, filed a lawsuit at the country’s highest court in Karlsruhe today in an attempt to pay less to poorer regions.

The home states of companies including Bayerische Motoren Werke AG (BMW) and Deutsche Bank AG (DBK) are the two biggest per-capita contributors under Germany’s system of financial equalization. Together with Baden-Wuerttemberg, they raised 7.9 billion euros ($10.3 billion) last year for poorer states such as Berlin.

“We expect the highest German court to provide minority protection for taxpayers in Bavaria and Hesse,” Bavarian Prime Minister Horst Seehofer said in an e-mailed statement. “We aim for cohesive and equitable financial equalization that rewards one’s own efforts and punishes idleness and a recipient mentality.”

German Chancellor Angela Merkel’s Christian Democratic Union and its Christian Social Union Bavarian sister party, led by Seehofer, face electoral challenges this year to their respective rule in the two states. Bavarian voters go to the polls on Sept. 15, one week before elections on Sept. 22 in the state of Hesse and national elections the same day in which Merkel is seeking a third term.

The city-state of Berlin gets more than 40 percent of the total amount available for redistribution while the city-state of Hamburg has become a net recipient even though it generates the highest per-capita tax revenue in the country, Seehofer said, calling the equalization program “grotesque.”

Hesse and Bavaria want a cap on transfers coupled with incentives for recipient states to strengthen their finances. Baden-Wuerttemberg didn’t join the lawsuit as its government wants to negotiate a reform of the system that will remain in place until at least 2019.

Nine of Germany’s 16 states are run by coalitions led by the Social Democrats, in opposition at federal level, while six are ruled by coalitions led by Merkel’s party, or the CSU in Bavaria’s case. Baden-Wuerttemberg is governed by a Green state premier whose party is also in opposition nationally.

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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