June 7, 2023

Municipalities face property tax fiasco?

Municipalities face property tax fiasco?

From 2025, property taxes in germany will have to be recalculated – but the majority of the lander still haven’t decided how this will work.

According to a survey by the german press agency, six federal states are still deciding whether to implement the model proposed by the federal government or develop their own. Four states have decided on their own concepts, but none has been finally adopted.

But there is not much time left, because the changeover at the tax offices and the revaluation of land will take a long time. The german tax union is already warning. "The finance ministers must finally tackle the property tax, otherwise there will be a fiasco for the municipalities," said union leader thomas eigenthaler to the "frankfurter allgemeine zeitung". After the corona crisis, they are dependent on every euro.

At the turn of the year, the cities and municipalities had promised not to use the changeover to restructure their coffers. Ultimately, the municipalities determine the level of property tax through their levy rates – regardless of the state’s calculation model. It is not about additional revenue, the association of cities and municipalities had assured. Whether this can still be maintained in view of the massive tax losses due to the corona pandemic is an open question.

Property tax is one of the most important sources of income for municipalities. Last year, around 14 billion euros were collected. That’s 15 percent of municipal tax revenues, which pay for such things as trenches, swimming pools and theaters. Most apartment owners pay a few hundred euros in property tax each year, while tenants are asked to pay through their utility bills.

At the end of 2019, the federal government decided on a new calculation model, but many federal states were not very enthusiastic about it. They were therefore allowed to develop their own concepts. Bavaria, hesse, baden-wurttemberg and lower saxony want to do so. Berlin, thuringia, rhineland-palatinate, schleswig-holstein, bremen and the saarland, on the other hand, have decided to stick to the federal government’s model, according to the dpa survey.

Berlin’s finance senator matthias kollatz (SPD) promised: "for tenants in normal residential areas – and that’s the majority of the population – the current tax rate will be maintained or even slightly reduced. It is the fairest and most efficient model, declared the bremen fiscal administration. However, all land and buildings will have to be revalued in the next few years. The concept is based on the value of the land, a statistically determined cold rent, the area of the land and the type and age of the building.

Several federal states find this too complicated – above all bavaria, which wants to be guided solely by the flat rate. However, this means that properties in prime locations in munich and in the countryside are valued identically. Hesse and lower saxony recently presented models that additionally take the location of the property into account. Baden-wurttemberg likely to use flat and standard land value as a basis. Nothing has been decided.

Who benefits and who pays on top is still an open question in all countries. "Each reform model is compared to the unconstitutional

standardized valuation will create winners and losers," predicts hesse’s finance minister michael boddenberg. It all depends on whether or not the property has been assessed at an unusually low level so far. Currently, property tax is still calculated on the basis of completely outdated, decades-old figures – many properties in germany were worth much less then than they are today.


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