Property Tax Fiasco: A Run-Down on the German Property Tax Reform Debacle
Property tax predicament escalates, causing distress among taxpayers and local government officials alike. - Dispute Regarding Imposition and Amount of Real Estate Taxes
Written by Rolf-Herbert Peters
In 2018, the Federal Constitutional Court allegedly declared the German property tax on real estate unconstitutional. A reform was essential. On June 27, 2019, the former Federal Minister of Finance, Olaf Scholz, promised the Germans in the Bundestag, "The reform should not increase the tax revenue overall." In other words, they would revise the properties, and distribute the levies more fairly without pocketing the additional revenue.
However, it seems they overlooked a fundamental principle of the republic during this reform: the uniformity of living conditions. With this constitutional amendment, the states gained the power to issue their own property tax laws, each in their unique way. Since the implementation of the new property tax assessments on January 1, 2025, it appears that the procedures do not meet the highest court's expectations for equal taxation.
Two-Thirds End Up in the Red
Due to the harsh nature of the assessments, about two-thirds of the affected individuals have to pay significantly more than before, according to a survey by Wiso-Steuer. The software manufacturer evaluated 46,000 cases, which roughly represent the German population structure. The result: Only about a quarter are relieved, while less than seven percent remain unaffected. Already mathematically, this outcome cannot be revenue-neutral in the end.
The differences between the states noticeably vary. On average, the burden on owners increases by 84.5%. Schleswig-Holstein, on the other hand, witnesses only a 54.7% increase, while Berliners are hit with a whopping 116.8% more. This is partly because some municipalities haven't lowered their tax rates to achieve revenue neutrality.
There's no doubt, the constitutional judges were right: The need for revising the 36 million properties and buildings in Germany was pressing. The uniform values used as a basis were outdated beyond recognition. We know this, for example, from major cities: Former cheap workers' settlements have transformed into trendy and expensive residential areas. The old values bore no resemblance to the reality of the real estate market.
The Rich Keep on Slipping Through the Cracks
Many rejoice, thinking, "What's wrong with a higher property tax, finally the rich property owners are made to pay!" But that's shortsighted. The property tax is a real estate tax, not a hidden wealth tax. It taxes the ownership of real estate, regardless of the overall wealth of a person. Furthermore, it often hits tenants hard, as the landlord can pass on the property tax as a "public burden of the property," which is common practice.
Therefore, those who want to target the concrete millionaires should focus on other aspects, such as real estate transfer tax, inheritance tax, or implementing a real wealth tax. Scholars like economist Gerhard Graf even consider the property tax, in its reformed form, unconstitutional because it continues to violate the principle of equality. Graf calls for the abolition of this relic due to its outdated methodology.
The Constitutional Court's Second Look is Looming
Without a doubt, the revised property tax disproportionately affects classic housing forms like single-family houses or building plots, which are particularly sought after by young families for self-use. Established villa districts, however, get off relatively lightly.
Over the past few years, real estate tax revenues have skyrocketed, surpassing 15.5 billion euros in 2023, and this trend seems likely to continue. However, more than seven million property owners nationwide have filed appeals against their new real estate tax assessments. Numerous model lawsuits challenging the state's tax assessment procedures are already pending. It's quite possible that the coalition of black and red will have to tackle another substantial financial challenge during this legislative period: Refunds could be imminent. It would only be fair.
- The property tax reform, while intended to revise and distribute levies more equitably, has failed to maintain the uniformity of living conditions across German states, with some communities imposing significantly higher taxes, leading to an overall increased financial burden on property owners.
- As the constitutional judges forecasted, the reform of the community institution, institution of the place of residence, and institution of the place of stay has brought about unexpected consequences, resulting in a business dilemma for many property owners and potentially necessitating another round of political negotiations, particularly regarding the general-news issue of tax refunds.
