Public Finance

General

Brandenburg has its own annual State budget separate from the annual budget of the Federal Government. Generally, expenditures by Brandenburg are permitted only if they are explicitly provided for in the budget  or if they relate to one of the special programs receiving separate funding ( Sondervermögen) from the State of Brandenburg. The fiscal year for the State budget is the calendar year. Each year the State budget for the next consecutive year is drafted by Brandenburg Ministry of Finance and submitted to the State Parliament for enactment.

The State Ministry of Finance is also required by law annually to prepare a Medium-Term Financial Plan for presentation to the State Parliament. Based on planning figures collected from the various State ministries, the Medium–Term Financial Plan sets forth the projected expenditures for the current and next four years that the State Government of Brandenburg anticipates will be necessary. It also contains the way how funds to meet those expenditures are expected to be obtained, and describes how the projected budgetary development will fit into the projected development of the economy as a whole.
The Medium Term Financial Plan describes the State Government fiscal and budgetary policies and priorities. The plan is adjusted periodically as the State´s actual revenues and expenditures become available for the given year, changes to the Federal and the State tax laws and horizontal and vertical funding programs are enacted, and the economies of the State and the Federal Republic economy develop .

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The following table sets forth a summary of Brandenburgs revenues, expenditures and net new borrowing for each of the years indicated.

 

Most important parts of Revenues  2006, Budget Volume 10.047 Mio. €:

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Important expenditures:

Expenditures
(mn. €)

2002

2003

2004

2005

2006 Budget

2007
Budget

1. Personnel

2374,2

2395,8

222,3

2095,1

221,7

2048,4

2. Administration

362,5

362,4

348,3

387,2

359,9

413,0

3. Interest

757

781,1

848,8

783,5

869,7

864,5

4. Transfers

4508,2

4278,4

4259,5

4604

4532,3

4682,8

5. Capital Expenditures

2161,2

1781,7

1840,4

1753,6

2053,6

1927,1

Summary of operating figures:

 

2003 annual

2004 annual

2005
Annual

2006 budget

2007 budget

2008 plan

Operating revenues

8018,1

8218,7

8226,9

8191,5

8415,4

8520,6

Operating expenditures

7817,6

7678

7870,5

7978,7

8008,8

8379,4

Operational Surplus

200,5

529,9

356,4

213,8

406,6

151,2

As percentage of                       operating revenues

2,5

6,6

4,3

2,6

4,8

1,7

Source: Table 6 in “Finanzplan des Landes Brandenburg 2006-2010”

Taxes

Under the German Constitution, Germany´s tax system , including taxation at the level of the Länder, is governed by federal law. So Brandenburg does not have the power to raise any other taxes or to set its own tax rates. Under the system of Germany´s constitution, the Grundgesetz, Brandenburg ist entitled to collect certain taxes directly within its territory. The federal Government ist likewise entitled to collect certain other taxes on an exclusive basis. However, 70% of all taxes are shared taxes.  The revenues arising from the personal income tax, the corporate income tax and the value added tax belongs jointly to the Federal Government and the German Länder.

Horizontal Revenue equalization

Under the constitutional principle of revenue equalization ( Länderfinanzausgleich), financially weaker Länder are entitled to receive additional funds from financially stronger Länder. This constitutional principle is intended to effect an appropriate financial equalization among financially weaker and stronger Länder.
Länder with tax revenues in excess of their respective average financial requirements , taking into account such factors as the size of its number of population and population density, are obligated by the Grundgesetz to transfer a portion of their revenues to those Länder whose tax revenues do not meet their respective average financial requirements. These transfers, together with their own tax revenues, have typically enabled the financially weaker Länder to meet 95% of their average financial requirement in recent years.

Vertical Supplement Funding

In addition to the system of horizontal revenue equalization the German Constitution provides for vertical supplemental payments by the Federal Government to financially weak Länder. This payments have in recent years  increased the total revenues of financially weaker Länder to enable them to meet 99,5% of their average financial equipment.

Brandenburg will benefit from these payments in the next years:

 

2006 (Budget)

2007 Budget

horizontal and vertical equalization in mn. €

2576

2442

In addition, the Federal Government currently provides supplemental funds to the Länder to cover the above-average administrative costs that are typical incurred by the smaller Länder, including Brandenburg, liabilities and costs resulting from the German division during the Cold War, and the costs incurred by the western Länder in supporting the eastern Länder until 1995 through the German Unity fund.

Overview:

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Federal Solidarity

Länder undergoing extreme financial hardship such that they cannot finance their expenditures, even after receiving horizontal and vertical equalization payments are entitled to additional support from the federal Government and the other Länder pursuant to the constitutional principle of Federal solidarity. According to the Federal Constitutional Court in its decision dated May 27,1992, the constitutional principle of Federal solidarity  requires that the Federal Government and other Länder support a Land that becomes subject to a extreme budget emergency.

Public Debt

Brandenburgs direct debt includes indebtedness incurred directly by the State and does not include indebtedness incurred by State owned institutions and enterprises and  special funds (Sondervermögen).
At July 1th 2006 Brandenburg´s total outstanding direct debt amounted to 17,6 billion.

Based on the Medium Term Financial Plan the States direct debt will increase to approximately 20 billion by 2010.

 

2004

2005

2006 Budget

2007 (Budget)

Net New Borrowing mn. €

704,3

554

826,4

650