For many years, Germany's capital kept living above its means, plunging the city budget deep into the red while sending debt sky-high. Lately, though, the tide has turned: For the first six months of this year, the State of Berlin reported a budget surplus of 730 million euros – the third-best result of all German states. In term of surplus per capita, Berlin actually was the runner-up, second only to Saxony.
Tax Revenue Equalisation and Austerity Measures Put Berlin's Budget Back on Track
The surplus is to some extent explained by the tax revenue equalisation scheme that has Germany's wealthy states sponsor the poorer ones. Berlin's budget benefits specifically from assistance provided by three donor states, these being Bavaria, Baden-Württemberg, and Hesse. In 2012 alone, approximately 3.3 billion euros in aid were flushed into Berlin's coffers, making it the biggest single recipient of the tax equalisation scheme among the German states. At the same time, Berlin has pursued a strict austerity policy for several years now, being more than 60 billion euros into debt. Government spending, for instance, has grown by only 2.4 percent over the past ten years. For the sake of comparison: The spending increase in Bavaria during the same period came to 25 percent. Moreover, Berlin sold some of its assets in order to beef up its budget. Berlin's Liegenschaftsfunds property fund contributed to the city's revenues by selling approximately 2.4 billion euros worth of state-owned properties. The austerity measures are paying off: For the first time in many years, Berlin was able to report a positive budget balance by the end of 2012.
Positive Result from Incoming Migration and Economic Growth
Then again, the recovery of Berlin's budget is also attributable to certain other factors. For one thing, the number or people moving back to the city it increasing. This stimulates the economy, fosters growth, and boosts tax revenues as a result. Berlin has acquired a reputation as the epicentre of European start-up businesses. Some of the new companies are making good money, and remitting a tidy share of their profits. They also create an above-average number of jobs, and are the powerhouse of Berlin's economy.
Not least, anyone buying property in the German capital thereby helps to fill the city's coffers by remitting real estate transfer tax dues. In 2012, these levies alone added up to 578 million euros for the city. By raising the tax rate from five to six percent as of the start of next year, the city is likely to boost tax revenues even further. So people thinking about buying a condominium and trying to keep a lid on their tax remittance are well advised to sign a deed before the end of the year in order to benefit from the lower tax rate still in place.
Extra Revenues through Planned City Tax
Not just locals, but the countless tourists visiting the city are also expected to pitch in: Berlin is thinking about introducing a so-called “city tax” on overnight accommodations that would take a percentage cut out of the hotel costs paid. Berlin would not be the first metropolis to levy such a tax. The Senate is projecting extra revenues to the tune of 25 million euros per year – and this money, too, would help to ease the strain on the city's tight budget.