Scholz’s Property Tax Reform Is Met with Resistance

Finance minister Olaf Scholz’s plans on reforming the property tax couldn’t convince his coalition partners. Quite the opposite.

There’s not much time left until the reform’s final proposal has to be drafted. Image: Deutscher Bundestag / Achim Melde

In April of last year, the federal constitutional court declared the current property tax unconstitutional. A rearrangement is necessary and has to be prepared by the end of 2019, in order to be implemented in 2025. With that, the ministry of finance, which is led by Olaf Scholz (SPD), is pressured into developing a new proposal and therefore met the ministers of the federal states in early December in order to discuss the latest draft.

But this one has been torn apart by the participants of the meeting. It’s too unfair, bureaucratic and unconstitutional. Of all things, the coalition partners of CDU/CSU met this draft with the strongest rejection. For once, they criticised the deduction for metropolis cities, which is supposed to prevent strong tax increases in expensive, big cities. Furthermore, the way on how this new property tax is calculated is dependent on way too many factors, making calculations not simpler, but only more bureaucratic and complicated due to their differing weighting and unforeseeable interdependencies.

More factors, less clarity

Scholz showcased the alternative draft at the beginning of December. Instead of measuring the property tax by the area size as proposed, it should now be calculated through a construct of values like construction year, property area, living space, ground value and net cold rent. How all these are weighted, couldn’t be answered sufficiently upon request.

What is clear though is that this tax will increase noticeably for cities and new buildings and that tenants will have to bear these costs, even if these will be only “average, double-digit euro amounts”, according to the ministry of finance. In order to spread rising costs fairly, higher assessments should be compensated through a significantly lower property tax index number, while the individually, municipally defined assessment rates within metropolises should differ between city districts.

Why the property tax needs to be reworked

According to the federal constitutional court, the property tax is severely outdated. The product of assessed value, property tax index number and the individual assessment rate currently amounts to 14 billion euro, which makes it the most important source of income for municipalities. The main issue stems from the age of the assessed values. These individual, property measuring values haven’t been adjusted for centuries, so that many buildings in West Germany were measured 1964’s and in Eastern Germany even by 1935’s standard – which now rendered them invalid.

 

More on this topic:

Property tax reform: Tenants benefit the most

ifo report: Property tax should be assessed by area

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