The Property Tax Reform Could Lead to Federal Fragmentation

The German Bundestag passed the Federal Ministry of Finance’s proposal for a property tax reform by approving an amendment to the Basic Law. The property tax reform must be completed by the end of the year as the Federal Constitutional Court had previously objected to outdated tax bases. Professor Sebastian Siegloch, head of the Research Department “Social Policy and Redistribution” at ZEW Mannheim, comments on the adoption of the reform by the German parliament.

“Economically, it makes sense to closely link the amount of property tax to the value of real estate. In this respect the reform passed today is to be welcomed. Unfortunately, the so-called ‘opening clause’ allows the individual federal states to go their own way and base the tax solely on plot size. Hence, the reform could lead to a federal fragmentation. If the plot size model prevails in the competition between the individual states, there is the danger of an economically unsound and unfair property tax.”