Following the expert discussions and the planning workshop, the delegation members specifically asked for further guidance and support for the reform process by administrative officials of the Hessian Ministry of Finance. The reorganisation of municipal financial equalisation in Hesse in 2016 discussed at the meeting in the Hessian Ministry of Finance met with great interest among the Bolivian partners. It was decided to intensify the exchange with employees of the ministry in order to get to know the process of reorganising the municipal financial equalisation system in Hesse and to use elements of this for the upcoming process of reforming of financial equalisation in Bolivia.
In April 2017 therefore, two employees of the Hessian Ministry of Finance travelled to La Paz together with Dr Jan Werner, professor of economics at the Cologne Business School, who specialises in questions of financial equalisation. In a workshop with Bolivian central and local government officials they explained and discussed financial equalisation at the municipal level in Hesse and at state level in Germany. Working groups and case studies also provided participants with an opportunity for joint reflection on principles and options for reforming and designing financial equalisation in Bolivia. The Bolivian side thus seized this opportunity to advance their own reform considerations with new ideas.
In July 2017 Dr Jan Werner travelled to La Paz on a second consultancy mission to hold workshops with other members of the national decentralisation council, including representatives of political levels, and to attend a meeting of the Technical Commission of the Fiscal Compact. According to current plans, Bolivia will decide on the reform of the financial equalisation in October 2017.
The participants took the following key messages home with them from the exchange with their German colleagues for further negotiations on the Bolivian fiscal pact and fiscal equalisation:
- Financial equalisation systems are based on the stronger sharing their wealth with the weaker. Financial equalisation systems can reduce excessive disparities of financial strength between individual municipalities, allowing them to provide an approximately equal supply of basic public services.
- In Germany, municipal financial equalisation contributes to the realisation of the principle of equality of living conditions, as embodied in the Basic Law. The redistributive mechanism ensures that communities with low financial strength (low tax revenues) can guarantee a minimum supply of public services to their citizens approximately equal to that of communities with high tax revenues.
- Functioning financial equalisation requires a ban on levelling. That is, existing inequalities in the tax strength of the communities should be appropriately evened out by financial equalisation, but not levelled completely. Otherwise there would no longer be any incentive for high-income municipalities to increase their tax potential or to tap new tax revenues.
- Reforming a financial equalisation system is a "mammoth task" that requires a lot of time, work and the willingness of all parties involved to compromise.
- The basic success of the German model is based on a functioning consensus democracy and the desire of all players involved to agree.
- Consistent external communication of the results of working sessions is crucial as individual public dissent hampers consensus building.
- The solidarity principle of the uniformity of living conditions is a key political guideline that underlies the German financial equalisation system.
- In Germany, the tax administration of the states collects levies for the municipalities. This cooperation is an important prerequisite in Germany for the efficient collection of revenues of the municipalities and thus also for functioning financial equalisation.
- The development of new tax sources such as income tax to finance the financial equalisation.
For the German officials who were in Bolivia the effort was definitely worth it.