Conditions for a Left Budgetary and Financial Policy in the German Region Brandenburg

By Daniela Trochowski, second Latin America-Europe conference in Brussels, 27-29 June 2010

Dear Madam, dear Sirs, In the aftermath of the economic crisis the conditions to participate in the coalition government in Brandenburg have dramatically changed for the party DIE LINKE.

When we entered into negotiations to form a coalition government in autumn 2009, we knew about the difficult conditions we would have to face, one major concern was the public deficit in Brandenburg. Only today we begin to recognize how difficult those circumstances have really been and that things will get worse than estimated back in autumn 2009.

The financial position of the federal state Brandenburg and its municipalities still is dramatic. The current public debt lies about twenty billion Euros. In the next months no considerable changes to this situation will take place. To a great extent Brandenburg depends on intrastate monetary transfers. That means it depends on measures on a federal level to consolidate the households of the regions with a system of horizontal fiscal equalisation such as the Laenderfinan-zausgleich, or extraordinary payments such as Solidarpakt II. With a limit until 2019, the annual rate of money transferred by the latter (Solidarpakt II) decreases, leading to a substantial loss in public revenues in the upcoming years.

The decline of internal revenues on the federal level caused by the economic crisis affects those measures, leading to a smaller amount of money to be shared between the regions (Laender). In 2009 the household budget deficit was 460 million Euros on the federal level. For this year, the loss of public revenues was about 470 million Euros, and in 2009, the horizontal fiscal equalisation system (Laenderfinanzausgleich) transfers 204 million Euros less to Brandenburg. As tax incomes in Brandenburg will decline as well, the situation will get even tenser, leaving no space to correct structural deficits in the household.

The aftermath of the financial and economic crisis will have a great impact on budgetary policies on both federal and state-level. We have to state that the narrowing financial scope for public households is a result of incorrect political decisions. Those decisions have been based on an inadequate perception of the state´s role, both on the European and the national level. The current crisis of public budget is primary a result of the neoliberal doctrine. This doctrine first transposed tax policy and led to the current crisis of the Euro, which is followed by a deep financial and economic crisis.

First of all, neoliberalism attacks the public expenditure quota as it is the case in Greece. During the financial crisis the stock exchange in Greece did not rely on tax payments. It was consolidated by public debt. Those neoliberal stability measures led to a collapse of both the neoliberal and the European welfare state. The public debt caused by those measures leads to a new crisis, for which all European countries will have to assume liability.

Due to the political system in the Federal Republic of Germany tax income for Brandenburg largely depends on policy taken on the federal level. In retrospect this dependence is getting visible. Whenever the governing coalition on the national level has changed tax laws or adopted a tax cut, it affected public households in the regions (Laender). Mostly those measures by both the coalition of the Social Democrats and the Green Party and the coalition of the Christdemocrats and the Liberals led to a cutback on level of the regions (Laender).

The changes in tax laws also generated gains, but those weren´t taxed. They have not been invested in education or infrastructure programs, but led to more speculation on financial markets. Now we are confronted with the results of these speculations on all levels. With less money available public poliy nowadays is confronted with the results of those wrong decisions and the functional capability of public institutions is endangered.

Even Social Democrats nowadays admit that the doctrine “No public intervention in the Market” cannot solve social problems. The unregulated financial markets generated a huge stock bubble which finally burst. The market is not an efficient mechanism to regulate neither the financial markets nor the real economy. Regulations of financial markets and financial institutions, as the change for a more social just and ecological economy, need regulation from the left and are a public task.

To put this insight into practice we have to transfer resources and competencies to the state. Instead of doing so, the national governments increased public spending by transferring hundreds of billion Euros in order to consolidate financial markets. As more public measures to consolidate the euro will follow, this is a disaster for Europe.

The state should not be reduced to an actor that consolidates financial markets but is not capable of providing service to the public. The most urgent political question in the upcoming future is who will have to pay for the huge public debt. Means to recover the public budget should not be limited to a reduction of public spending, if not new incomes should be generated by taxation of wealthy and capable citizens. Increasing pressure on public budgets to reduce spending and the decline in income caused by reduced transfers or a failed tax policy on the federal level show how fragile public households are.

The coalition by Social Democrats and the Left in Brandenburg sets different priorities. Being aware of the crisis of public households, we offer new opportunities to the citizens in Brandenburg. As an actor embedded in those circumstances we have to make decisions in order to transfer the required resources to realize our core measures, even when the circumstances for our policy get worse and worse.

We invest in education, new teachers and educators are employed in our institutions. Afters years of precarity and indignity, permanently unemployed persons get a new job in programs generated by the public sector, with a wage comparable to most tariffs.

From September on, pupils in High School, whose parents come from a low-income background, are supported by a public lending program, the Schueler-Bafoeg. Companies from Brandenburg managed their way through the crisis, supported by public programs.

In the political debate on a social and sustainable development in Brandenburg the coalition government faces public opinion and adopts a position that is based on confidence, credibility and realism. Our budgetary policy is courageously and realistic. In the current situation this means to lead Brandenburg through the crisis by a just and responsible policy.

Our core measures are balanced between the consolidation of the public household, securing the state’s capacity to act and a policy that promotes Brandenburg’s development.

A final remark: Our experience with coalition governments formed by the Social Democrats and the Left in the regions (Laender) – Brandenburg, Mecklenburg-Vorpommern and Berlin – shows that we can realise social change and that we can set new accents in order to change the direction our society takes. As the coalition by Christian Democrats and Liberals Democrats disrupts the nation, excludes the most poor and endangers social stability, change is urgent!

Daniela Trochowski: State Secretary, Ministry of Finances, Party Die Linke, Brandenburg, Germany

Contribution by Iole Ilíada ►