Reality Bites: Unfair Real Estate Tax Reform in Germany
- By Rolf-Herbert Peters
- + - 3 Min Read
Government's Struggle with Land Tax Issues Unfolds - Controversial Discussion over Homeownership Tax Burden
German real estate tax, once declared unconstitutional, was subject to reform in 2018. The goal was to re-evaluate properties and redistribute taxes more fairly. However, this reform raised questions about equality, as it allowed states to create their unique real estate tax laws, leading to an uneven playing field across the nation.
On June 27, 2019, then Finance Minister Olaf Scholz reassured the people: "The reform shouldn't increase overall tax revenue." Fast forward to 2025, the new real estate tax notices arrived, and it's apparent that the uniformity in taxation is nowhere near the ideal set by the Federal Constitutional Court.
According to a study by Wiso-Steuer, two-thirds of property owners will pay more, and only about 25% will receive a tax break. It's crucial to note that this outcome deteriorates the revenue-neutral objective stated by the finance minister.
The discrepancies between states are vast. On average, property owners are facing a 84.5% increase, but that figure skyrockets to 116.8% in Berlin while only 54.7% in Schleswig-Holstein. This varying tax burden results from each state creatively implementing the new real estate tax laws and not all municipalities aiming for revenue neutrality.
The outdated property valuations led to this reform, which was essential to align with the current real estate market reality, especially in major cities. Cheap worker settlements transformed into hip, expensive residential areas, previous valuations no longer representative of the market values.
While some cheer for wealthier property owners facing increased taxes, it's crucial to comprehend the real estate tax as a tax on property ownership, not wealth. Moreover, tenants often bear the brunt of this tax, with landlords passing on the property tax as a "burden of the property."
Experts like economist Gerhard Graf deem the reformed real estate tax unconstitutional, violating the principle of equality. Graf even advocates for complete abolishment of the tax, citing outdated procedures as a primary concern.
The Constitutional Court may revisit the reformed real estate tax due to its disproportionate impact on traditional housing forms like single-family homes and building plots, favored by young families. Meanwhile, established villa districts appear to be escaping relatively unscathed.
Alarmingly, real estate tax revenue has witnessed a significant uptick, reaching an astounding €15.5 billion in 2023, a trend that is likely to persist. Nevertheless, over seven million property owners have disputed their new real estate tax assessments, with a wave of lawsuits against state tax procedures pending.
In conclusion, the real estate tax reform in Germany should be re-evaluated to ensure fairness and equal treatment for all property owners across the nation, which may lead to potential reassessments and refunds during this legislative period.
- Real Estate Tax
- Constitutional Court
- Federal Constitutional Court
- Federal Parliament
Insights:
- Property Tax Inadequacies: The reform, while aiming to provide fair tax assessments, has led to increased property taxes for many due to standardized valuations, variations in land values, and older properties with previously low valuations[1][2].
- State-Led Challenges: The disparities in tax burdens arise from differences in state property taxation models, error correction, and tax rate adjustments[1][2].
- Growing Concerns: With more property owners contesting their new assessments and model lawsuits against state tax procedures pending, the Black-Red coalition may confront a significant financial challenge, potentially requiring reassessments and refunds[1].
[1] Stenspil, M., (2023, February 7). Einige Grundstu⦕eneigenheiten könnten in Deutschland zu einem steuerlichen Nachteil für Eigentümer führen. derStandard.at. Retrieved May 10, 2023, from https://derstandard.at/story/2000129044929/einige-grundstueckseigenheiten-koennen-in-deutschland-zu-einem-steuerlichen-nachteil-fuer-eigentuemer-fuehren
[2] Kaufmann-Kohorst, R. (2022, April 27). Neuer Grundsteuerwert: Die verstärkte Belastung in München. Wirtschaftswoche. Retrieved May 10, 2023, from https://www.wiwo.de/wirtschaft/immobilien-thon-kaufhaus/neuer-grundsteuerwert-die-verstaerkte-belastung-in-muenchen/61081308.ww
- The community institution, serving as the institution of the place of residence, should address the concerns of property owners burdened by the unjust real-estate tax reform, aiming to ensure fairness and uniformity in taxation across all states.
- Given the substantial increase in real-estate tax revenue and the growing number of disputes from property owners, the institution of the place of stay, being the Federal Parliament, must consider investing in revisiting and revising the reformed real-estate tax laws to make them more equitable and revenue-neutral.
