The new revenue sharing law has hardly changed the distribution of public funds among the federal government, Länder, and communities as compared to previous laws, except that the distribution key for joint federal taxes (for income-based and inheritance taxes) has clearly shifted in favour of the federal government, which, with the exception of ATS 1 billion, claims all additional revenues flowing from the tax measures provided for in the laws accompanying the budgets for 2000 and 2001. As a result, the federal share of the joint federal taxes rises, and will again grow in 2002 by which time the federal government will receive 70.2 percent of the joint federal tax revenues available for distribution. Since the provinces have undertaken, within the scope of the growth and stability pact, to achieve a surplus of 0.75 percent of GDP, and local governments are set to achieve a balanced budget, tensions are expected to rise in view of the narrowing leeway open to the provinces and communities. Nevertheless the new revenue sharing scheme and the law covering earmarked contributions show a trend towards lesser use of earmarked funds, which in turn widens the margin given to the provinces. The legal frame for transfer payments has remained widely unchanged. The smaller communities were able to negotiate for a greater portion of the horizontal distribution of revenue shares: they will now get a higher base amount which will rise annually for the duration of the current scheme. Consequently, the share obtained by the smaller communities will increase at the expense of larger municipalities – first indications of growing solidarity between communities. In the longer term it will be necessary to refocus the revenue sharing scheme on responsibilities. The object should be to reduce the enormous transfers between territorial authorities (almost ATS 200 billion in 1999) and replace them by a distribution of revenue shares on the basis of financing responsibilities, so that performance and its financing are more closely linked. This implies not just changing the financing system, but also further departing from the earmarking practice which aggravates efforts by the provinces and communities to achieve the goals of the stability pact. Greater emphasis on responsibility-focused distribution of revenue shares would also meet the demand for more competition between regions without the need to change fiscal sovereignty. In Austria, greater consideration of the source principle would be problematic for revenue distribution as it would compound regional problems. Altogether, the new revenue sharing scheme needs to be viewed as being only an intermediate step towards comprehensive change and restructuring of future financial relations between territorial authorities.