DThe current German property tax is an obsolete model because, according to the Federal Constitutional Court, it violates the principle of equality. However, what is not taken into account in the reform by Finance Minister Olaf Scholz (SPD) are the rates charged by the municipalities. These determine the actual amount of the property tax at the end. And there are huge differences here.
The citizens of North Rhine-Westphalia last year paid on average property tax of 206 euros, while a resident of Bavaria was charged on average only 137 euros. The least paid last year, the citizens in Brandenburg and Saxony-Anhalt, which had to raise on average just 106 or 107 euros.
This is the result of an analysis of the audit and consulting firm Ernst and Young (EY) for the development of property tax and trade tax levies of all German municipalities in the years 2005 to 2018.
There are currently twelve municipalities in Germany with a tax deduction of zero points, most of which are very small municipalities in Rhineland-Palatinate and Schleswig-Holstein. The municipalities with the highest land tax B rates in Germany are currently in Hesse: Lautertal (1050 points) and Nauheim (960 points).
Highest lifting rate in Duisburg
The German city with the highest land tax rate is Duisburg (855 points). While there on average each inhabitant is burdened with about 267 euros, accounts for example in the Bavarian Regensburg each inhabitant only about 178 euros a year.
The basis of the current property tax B are the so-called unit values - in the west, the land is taken into account according to their value in 1964, in the east, the land values even come from the year 1935. The unit values are multiplied by the tax measurement, which varies according to the type of land, but nationwide is uniform.
The height is determined decisively by the municipality's own rate of levy, which is then multiplied by the amount. The property tax B is levied on built-up and buildable land and thus affects virtually all citizens, since they are either homeowners themselves or are involved in the tax on the ancillary rental costs. It brought the German municipalities in 2018 a total of nearly 14 billion euros – 13 percent of total tax revenues.
Property tax A refers to agricultural land. Scholz also plans to introduce a property tax C on undeveloped land with building rights. Higher tax rates are intended here to ensure that undeveloped land is built faster.
In the past five years, 58 percent of cities nationwide have increased the property tax rate, which has now averaged 378 points. In 2013, the average was 351 points. Since then, the revenue of the municipalities from the property tax climbed by 15 percent to last 14.2 billion euros. In Saarland, since 2013, each municipality has increased the levy rate, in Hesse it was 94 percent, in Rhineland-Palatinate and North Rhine-Westphalia more than 80 percent.
Many federal states have hardly increased
The regional differences between the individual federal states have increased significantly in recent years, EY has calculated. The average real estate tax rate in Hesse has risen by 39 percent in the past five years and by 31 percent in NRW and Saarland. On the other hand, citizens in Baden-Württemberg, Bavaria, Thuringia and Saxony were hardly burdened, with average rates rising by less than five percent since 2013.
In recent years, however, fewer and fewer municipalities have made use of the opportunity to raise more money by means of tax increases: in 2014, 23 percent of the cities and municipalities in Germany had increased the property tax. Since then, the proportion has steadily dropped to eleven percent last year. "The good economy has led to financial relief for the municipalities and falling debts in recent years. This reduced the pressure to act in some municipalities, tax increases were rarely necessary, "said Bernhard Lorentz, Partner at EY.
Most increases were registered last year in the Saarland, where more than one in two communes raised the floor tax rate. In Lower Saxony, the proportion was 19 percent, in North Rhine-Westphalia at 16 percent. In Bavaria and Thuringia, however, less than six percent of the municipalities screwed up the levy rate.
"Rising rates for basic and trade tax are often a sign of a difficult budgetary situation of municipalities," says Helmut Dedy, Chief Executive of the German Association of Cities. Such decisions would not be easy for cities, but they are often unavoidable despite a large number of fiscal consolidation measures. "The focus for rising rates of levy therefore lies in the countries where there are many structurally weak municipalities. Higher rates of levy can alleviate, but not solve, the financial problems of local communities, "says Dedy.
Companies have become more mobile
For the tax increases of recent years, citizens have been more heavily paid than companies, EY found: The average property tax rate has increased 17 percent over the past decade, while the average trade tax rate has only been increased by eight percent. The reason is, according to Lorentz, that companies are more mobile – and that the municipalities would therefore compete for important business taxpayers.
It is still uncertain how the impending tax reform will affect the revenue situation of the individual municipalities, even if there is a political consensus that there should be no overall increase in the burden on citizens. The Federal Constitutional Court has declared the current land tax levy to be unconstitutional because similar plots of land are treated differently and that violates the principle of equal treatment enshrined in the Basic Law.
Therefore, the federal government must decide by December 31, 2019, what the new regulation should look like. Only if this succeeds can the land tax in its current form be charged temporarily until 31.12.2024. From 2025 the new property tax will be charged.
The bill proposed by Finance Minister Olaf Scholz, in which the property tax is based on the value of a property, also takes into account an opening clause for countries that do not want to participate in the Scholz system. In Bavaria or Schleswig-Holstein sympathizes with a value-independent model for the communities.
"We can not lose the property tax"
This model is based on the area of land and existing buildings. The values for land and buildings remain unconsidered. As a result, equivalent real estate tax payments are levied on land that is similar in area but significantly different in value. This can lead to new injustices in the land tax collection.
"Regardless of the debate on the amount of the levy rates, the most important thing now is to get the land tax for the communities at all," says Dedy. "Otherwise you can not raise them next year. We can not lose the property tax. "
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