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Fuest Favours Simple Base for New Property Tax

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The ifo President Clemens Fuest favours a simple base for Germany’s new property tax. “A combination of plot size, living space and usable area would form an appropriate basis for the tax. It would only need to be established once for each property, with adjustments to account for structural changes. Billions in valuation costs could be saved in this manner and endless disputes over the correct amount of taxes to be paid could be avoided,” explained Fuest on Tuesday following a ruling by Germany’s Constitutional Court that the current property tax is unconstitutional. Fuest rejected a tax based on current market prices, as this would presumably take ten years to determine, namely twice the length of time assumed by the Court,

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The ifo President Clemens Fuest favours a simple base for Germany’s new property tax. “A combination of plot size, living space and usable area would form an appropriate basis for the tax. It would only need to be established once for each property, with adjustments to account for structural changes. Billions in valuation costs could be saved in this manner and endless disputes over the correct amount of taxes to be paid could be avoided,” explained Fuest on Tuesday following a ruling by Germany’s Constitutional Court that the current property tax is unconstitutional.

Fuest rejected a tax based on current market prices, as this would presumably take ten years to determine, namely twice the length of time assumed by the Court, since it would involve revaluing 35 million properties to achieve annual tax revenues of 14 billion euros. According to Fuest, it would be a “bad idea” for the majority of German state finance ministers to support this concept. "The property tax is a purely non-personal tax that does not take into account ability to pay of individual taxpayers. Therefore the idea that a property tax based on market prices is more equitable is wrong.“ A tax based on market prices would also probably mean that economically strong German states with high real estate prices would have to pay more into the German Laender fiscal equalisation scheme. Recipient states would stand to benefit from such a tax, while Bavaria and Baden-Wuerttemberg would be the losers. Determining tax values for real estate may also prove a stepping stone on the way to a general net wealth tax. These are not intended effects of the property tax reform.”

Clemens Fuest
Clemens Fuest took over from Hans Werner Sinn as chairman of the IFO Institute in April 2016. He is professor at the Faculty of Economics of the University of Munich.

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