Burdening Effects of a (Re-)Implementation of the Property Tax


An analysis of the tax structure of other European countries shows that – mainly due to historical reasons – property taxes are fairly common. For instance, in Denmark, France, the Netherlands, Spain, Switzerland, as well as in Luxembourg taxes are raised on property. In each case the property tax applies to natural persons, while in Switzerland and Luxembourg it additionally applies to legal persons. Despite the abolition of the property tax in 1997, the discussion about the implementation of such a tax apparently has not died down yet in Germany.

In particular at the Land level, demands for an (re-)implementation of such a tax in Germany have been voiced recently. What the requested property tax should exactly look like remains yet uncertain. However, it is certainly not the purpose to re-implement the same tax that had been suspended in 1997 without modifying it. The suspension of the tax was caused by the property tax resolution by the Federal Constitutional Court of Germany. The court declared the application of the same tax property tax rate to all types of properties to be unconstitutional due to thegreat differences in the valuation of the assets. Furthermore, the basis of assessment of the suspended but formally valid property tax bill refers to rules and guidelines of the Valuation Law which are no longer valid.

As far as their proposals are concerned, the proponents of a property tax are all in agreement about the taxation of large private fortunes. However, the precise quantification of the burdening effects resulting from the requested (re-)implementation of the property tax is not possible since there are no concrete design proposals. With the aid of the European Tax Analyzer, a computer-based model developed by ZEW in collaboration with the University of Mannheim, it was, however, possible to reveal the consequences of a reimplementation of the property tax on Germany as a business location by calculating the burdening effects of different potential forms of a property tax on legal and natural persons. In a next step, they were compared on a national and international level. The calculations were based on an average business of the manufacturing industry with the legal status of a corporation as well as its shareholders. The results show that in the US (approx. 6.3 per cent) and the Netherlands (approx. 3 per cent) the property tax is higher in relation to the total tax burden than it would be in Germany (1.8 per cent) should such a tax be implemented. By contrast, in France, where the proportion of the property tax makes up 0.56 per cent and in Great Britain, where no property tax is levied at all, the proportion is lower than in Germany. Admittedly, the proportion of the property tax appears to be rather small; however, if compared on an international level, the overall tax burden in Germany is already quite high, and would be further increased with the implementation of a property tax.

Although the results would look slightly different when other types of businesses are taken into consideration, it is doubtless to say that the (re-)implementation of a property tax would significantly increase the tax burden and therefore damage the attractiveness of Germany as a business location. The extent of the additional tax burden depends basically on the concrete drafting of the tax, in particular on the amount and types of granted tax exemptions. Apart from the basic disadvantages of taxes on non-income values (such as the depletion of assets), there are a number of other reasons speaking against the implementation of a new tax, especially when unrelated to income, including the effort that has to be made for implementation and enforcement, and the resulting complication of the tax law. To conclude, the results suggest that the (re-)implementation of such a tax is to be assessed negatively.


Dr. Thorsten Stetter, E-mail: stetter@zew.de