Download A. Public finance in Germany

Public Finance in Germany
Prof. Horst Zimmermann
Public Finance in Germany: Warnings and
Lessons for Ukraine?
Lecture to the students in the degree program
„Master of Public Administration“
of the National Academy of Public Administration
Kiev, December 13, 2007
Prof. Horst Zimmermann
University of Marburg
GTZ-Project „Administrative Reform in Ukraine“
Email: [email protected]
Kiev, December 13. 2007
Slide 1
Public Finance in Germany
Prof. Horst Zimmermann
Public Finance in Germany: Warnings and Lessons for
Ukraine?
Contents of the lecture
A. Public finance in Germany: An overview
B. Germany – a country with three levels of government
C. Selected problems and derived lessons
I. Let the share of government in GDP grow?
II. Debt financing – the sweet poison
III. Unstoppable centralization?
IV. Raise the quality of public finances
Kiev, December 13. 2007
Slide 2
Public Finance in Germany
Prof. Horst Zimmermann
A. Public finance in Germany: An overview
Share of government in GDP (incl. social security systems)
Total 2006
46%
without social security systems
28%
of this: Central government
11%
Middle level
11%
Local level
6%
2008 Central government expenditure :
Labor, social affairs
46%
Interest payments
15%
Defense
9%
Kiev, December 13. 2007
taxes
VAT
33%
PIT
22%
Energy 12%
Slide 3
Public Finance in Germany
Prof. Horst Zimmermann
B. Germany – a country with three levels of government
Often heard: „Germany is a federation and thus not
comparable to Ukraine!“
The true element: Oblasts are no Laender.
The false one: Middle-level functions in both countries!
Land functions: esp. education, including universities
Local functions: esp. welfare payments, schools, utilities
Interbudgetary relations:
Many shared taxes (85% for all levels together)
some with decentral tax rate setting
Equalization transfers: Central:Land and Land:local
Kiev, December 13. 2007
Slide 4
Public Finance in Germany
Prof. Horst Zimmermann
C. Selected problems and derived lessons
I. Let the share of government in GDP grow?
Share in GDP (including social security systems):
1950 (beginning of „transformation“) about 30%
1970 39% and 1980 48%
= growth of the welfare state!
1990 45%, 2002 49%, 2006 46% =rather stable and high.
Ukraine recently 40%, so try to stay near that.
The lessons: To let it grow is easy, goodies for everybody.
If it can no longer be financed, reduction is painful:
French uproar, German reform rollback, Italy
Ukraine: long Soviet tradition of emphasizing equity
Warning: Let it not rise now, growth first
Kiev, December 13. 2007
Slide 5
Public Finance in Germany
Prof. Horst Zimmermann
cont‘d: C. Selected problems and derived lessons
II. Debt financing – the sweet poison
Accumulated debt in % GDP for all OECD-countries:
1970: 35% 1990: 58% =growth of welfare state
Germany 2006: 68%
Maastricht criteria: 60%, annual deficit 3%
Cause: annual deficit, why so tempting? Debt illusion!
Counter measures: absolute limit in Gryvnia? As% GDP?
Tied to investment? 2/3 parliamentary majority?
In Europe general discomfort! General warning!
Kiev, December 13. 2007
Slide 6
Public Finance in Germany
Prof. Horst Zimmermann
cont‘d: C. Selected problems and derived lessons
III. Unstoppable centralization?
In Germany after 1945 deliberate decentralization
Since then tendency towards centralization
e. g. 1969 3 Land functions became common functions
2006 Federalism Commission I: disconnect federal-Land
2008 second FC: disentangle fiscal relations???
Ukraine: highly centralized Soviet heritage
currently promising decentralization draft laws
important: insert guarantees against re-centralization
Kiev, December 13. 2007
Slide 7
Public Finance in Germany
Prof. Horst Zimmermann
cont‘d: Selected problems and derived lessons
IV. Raise the quality of public finances
New theoretical and political issue, MinFin discusses it.
Example for the tax side of budget:
Move from direct to indirect taxes
Theory: high tax rates = excess burden
Expenditure side of budget:
Share of investments = orientation towards the future.
Incentives to innovation/growth, quality education
You see: much to be done in Germany! And in Ukraine?
Thank you for your attention!
Kiev, December 13. 2007
Slide 8