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18 August 2021

Public Finances

Federal government and Länder support flood-hit regions

Flood relief fund

Germany’s federal cabinet today adopted a draft text proposed by the Finance Ministry and the Interior Ministry for the establishment of a special flood relief fund and amending other laws (2021 Reconstruction Aid Act (Aufbauhilfegesetz 2021)). In this way, the federal government is continuing its committed assistance aimed at supporting the German regions particularly affected by flooding and heavy rain. The special fund will provide financial resources to fund the necessary measures for private households, businesses and other bodies that have suffered damage, as well as to rebuild the infrastructure destroyed by the heavy rain and flooding.

“With the flood relief fund, the federal government and the Länder are standing by their pledges and are providing substantial financial support to the affected regions. The top priorities at the moment are to quickly repair the damage and to rebuild infrastructure! This will involve an immense effort, given the destruction in the regions hit by heavy rain and flooding. The federal government and the Länder are providing €30 billion to help the local people who’ve been affected, the damaged businesses and other bodies with reconstruction efforts. That’s what solidarity looks like in practice. We will join forces and overcome this crisis!” Finance Minister Olaf Scholz

Federal government continues its committed assistance

The federal government reacted quickly to the catastrophic flooding and heavy rain. On 21 July 2021, the federal government decided to cover half the costs of immediate assistance measures taken by the affected Länder. The immediate assistance is intended to cover emergency expenses incurred by individuals, businesses and local authorities. The federal government will initially provide €400 million to finance approved immediate assistance by the Länder. An administrative agreement to this effect was signed by the Federation and the affected Länder on 30 July 2021.

National solidarity fund

In the coming years, significant financial efforts will be necessary in order to repair the damage suffered by private households, businesses and public bodies (associations, foundations etc.) and to repair or rebuild damaged and destroyed federal, Länder and local authority infrastructure.

To this end, German Chancellor Angela Merkel and the leaders of the Länder agreed to establish a national fund, called 2021 Reconstruction Aid (Aufbauhilfe 2021), which will take the form of a federal special fund. The draft text adopted today by the federal cabinet puts this plan into action.

The special fund will be equipped with up to €30 billion from the federal government. This includes €2 billion in spending on the reconstruction of federal infrastructure which will be covered by the federal government alone. In a spirit of solidarity, the federal government and the Länder will each fund half of the costs of the reconstruction measures by the Länder, which will amount to €28 billion.

The Federation will provide €16 billion from the 2021 federal budget for the special fund as a first tranche. As of 2022, federal grants to the fund will be made as needed in accordance with the Budget Act (Haushaltsgesetz). In this way, the federal government will ensure the liquidity of the special fund and will make sure that sufficient resources are available. The contribution of the Länder to the financing will be implemented by adjusting the vertical apportionment of VAT revenue over a period of 30 years.

In addition, the Federal Building Code (Baugesetzbuch) will be amended to make it easier under planning law to temporarily erect mobile structures to accommodate people affected by flood disasters, as well as mobile infrastructure facilities (e.g. administrative buildings, schools, childcare facilities) in communities affected by flooding.

Swift assistance to repair flood damage

Action is urgently needed in order to set up the fund. The legislative process should be completed within a very short period of time. The new law will also authorise the federal government to issue, in agreement with the Länder, a statutory instrument defining the allocation of reconstruction funds among the affected Länder and establishing uniform principles for providing support.

The different levels of damage suffered by the affected parties will be taken into account when allocating funds to the Federation, Länder and local authorities as well as when granting assistance.