The property tax is one of the most important revenue streams for German municipalities. What is more, they co-determine the flow of revenues into their coffers since municipalities set their own assessment rates for the property tax. In 2017, German municipalities collected c. 13.9 billion euros in A and B class property taxes. This is up from 11.3 billion euros as recently as 2010 or an increase by 23%, as the Ernst & Young (EY) consulting company summarised in one of its latest surveys.1
Raising the property tax is a lucrative option for town and cities to balance their often strained municipal budgets. And the option is being used exactly toward that end. According to the EY survey, 60 percent of the German municipalities raised the assessment rate of the Class B property tax during the past five years. The weighted average assessment rate of the Class B property tax in Germany went up from 394 percent in 2006 to 464 percent in 2016, and thus by nearly 18 percent, according to figures released by the Federal Statistical Office.2 The assessment rate in Berlin has admittedly remained untouched since 2007, but only because it already is one of the country’s highest at 810 percent.3 In 2017, Berlin collected 805 million euros in property tax.
A Reform is Called for
The rise in property tax revenue is paying off for cities and communities. According to EY, German municipalities managed to generate growing financing surpluses over the past three years, and their total debt is declining. The ones picking up the bill are local residents, meaning both owners and tenants. After all, the property tax is recoverable and can be allocated to the tenant by the landlord. This implies that the government itself counts among the causes for the steady rise in housing costs.A reform of the property tax is imminent—though not in order to ease the burden citizens are bearing, but because the Constitutional Court of Justice declared the current calculation basis unconstitutional. The court gave German lawmakers until the end of 2019, by which deadline they will have to have revised their calculation basis. Several models are being discussed, but the decision is still pending.4Federal and state level lawmakers agree that the property tax should be revenue-neutral. This means that the burden on the average tax payer should not get heavier than it was. Yet it also implies inversely that there won’t be any tax relief either, at least not in a general sense. While it could be that some households will pay less property tax than they used to, others may have to pay more.
2 www.destatis.de/DE/Publikationen/Thematisch/FinanzenSteuern/Steuern/Realsteuer/Realsteuervergleich2141010167004.pdf?__blob=publicationFile (S. 8)