Please fill out all the fields marked with an asterisk * and then click on "Send form".
The article has been sent
Thank you for your recommendationClose window
Mr Mohring, you are seen as being a political pragmatist looking to strengthen the CDU’s core conservative values. These include upholding our social market economy and supporting our ‘Mittelstand’. What do you think of the current trend towards municipalisation?
Mike Mohring: The CDU finds it very worrying when SMEs offering public services are driven out of the market because city and district authorities have expanded the portfolio provided by their municipal companies. Dedicated family-run companies with strong ties to their regions have just as much right to fair competition in these regional sectors as well. At the end of the day, what is important is being able to offer our residents public services at appropriate prices.
Mike Mohring: It is a common belief of left-wing politicians that the state knows best how to run a business. They prefer to simply ignore the fact that many inefficiencies and arbitrary fees and charges were eradicated when the market was opened up to competition in the 90s. Instead, our economic system – which is currently based on protecting private property and free choice of employment – is being undermined, supposedly to democratise regional economies and public services. Councils are turning business decisions into questions of power, the subsidiarity principle of municipal business activities is falling by the wayside. Indeed, this is the declared aim of the “red-red-green” coalition in the state of Thuringia. The key element behind the reforms being made to municipal areas is to create even larger municipal companies which, the left-wing coalition hopes, will grow efficiency.
Mike Mohring, Head of the CDU Parliamentary Group in the Thuringian State Parliament and Chairman of the Conference of Financial Spokespeople of all German States
Mike Mohring: We are a party with strong ties to local and district councils. An important goal was achieved at national level when we revised Section 2b of the UStG (Value Added Tax Law). When two councils cooperate with each other and provide each other with assistance then they are exempt from charging VAT for these services. The political aim here was to create an environment so that councils do not need to merge their businesses and, consequently, further expand their municipal business activities. Given the above, however, such tax privileges should neither distort competition nor drive SMEs from the market. This was not the intention of the revision and is not something that will be accepted. Should major problems arise from this revision then we will have to react. In other words: we need to keep a close eye on the impact that the new regulations have on the market.
“We are a party with strong ties to local and district councils. An important goal was achieved at national level when we revised Section 2b of the UStG.”
The setting up of municipal special purpose associations is also threatening the very existence of SMEs. This development is encouraged by municipal commercial law. At the end of the day, are councils not cutting off their own nose as this also reduces their business tax revenue?
As you asked your question from the point of view of councils, I’ll answer from the same perspective: in the end, they will have to see whether the profits made from their municipal business activities make up for the revenue lost as a result of receiving less business tax. The more important question here – from a regulatory point of view – is whether fair competition can still be guaranteed in view of the interest rate advantages for municipal financing and the assumption of municipal liability. Ultimately, the decisive factor will be whether or how the unconditional reliability of municipal claims can be upheld over the long term. We will have to debate this question at some time or other and this will inevitably have an impact on the competition surrounding public services. The bankruptcy of the Gera utilities company has shown, for example, that there are unknown factors lurking in some municipal calculations.
Mike Mohring: There are already a number of protective mechanisms in place for ensuring the subsidiarity principle of municipal business activities is observed. Local authorities and municipal supervisory bodies must take a critical look at themselves to see whether it has been applied with due diligence. There are signs that there is room for improvement here. Those areas, which must not adhere to the subsidiarity principle, should be checked frequently to see how sound they are. Municipal commercial laws, local regulations and financial regulations all limit municipal expansion in the German states. I believe there are two main points that need to be discussed at national level. Firstly: the cartel office keeps a close eye on prices but not on rates and charges. This is another point that could potentially distort competition besides the opportunities offered by the Value Added Tax Law. This is typically referred to as “Flucht in die Gebühren” where councils escape [Flucht] scrutiny by charging fees [Gebühren] rather than prices. Secondly: awarding in-house contracts to municipal companies without putting them out to tender means SMEs are excluded from this process. This not only puts these companies at a disadvantage but local residents as well because, if there is no competition, they will never know if the service could have been provided more cheaply.