Initiative to Reintroduce the Property Tax
A Step to More Social Justice and Economic Reason
By Bremen study group on Alternative Economic Policy
[This article is translated from the German on the World Wide Web, http://www.memo.uni-bremen.de.]
German financial policy has manoevered into a situation where it blocks economic development and deepens the social division. German financial policy is directed mainly at reducing expenditures of the public budget and bringing the budget deficit to near zero by 2004 through new austerity programs. Social security contributions, expenditures for education, science and research and public investments are affected by the cutbacks and reductions. Expenditures of German territories and communities for material investments have fallen over a fifth in the last 10 years from 52 billion Euros in 19092 to 40 billion Euros in 2002. Public investments of East German territories and communities (without Berlin) declined from 11.6 billion Euros to 7.8 billion Euros. This led to irreparable damage to the infrastructure blocking economic development. Savings in education, training and science leave human intellectual potential unused. The cuts of social benefits force millions to the margins of society. State austerity policy in times of continuing mass unemployment is economically foolish because it contributes to the general weakness of demand and thus intensifies crises.
To justify the austerity policy pursued by red-green, reducing public borrowing to zero citing the shortage of state revenues is not a sensible economic goal. This shortage is largely its own fault. In the 16 years of its term in office, the conservative German government declared its economic ambition to lower taxes. After a brief new era phase, the following red-green government adopted this orientation in contradiction to its coalition agreement. The most recent reductions of the corporation tax, the top tax rate in income tax and the tax exemption of profits from the sale of domestic capital have dramatically intensified the economic plight of territories and communities and accelerated the social polarization.
In this situation, it is a special scandal that the red-green German government no longer wants to raise the property tax despite opposite promises in the 1998 election campaign and the coalition agreement. The property tax existing up to 1997 was approved by the 1995 German constitutional court because property and real estate were taxed too little on account of poor bases for assessment. Thus the principle of equal treatment of all kinds of assets was violated. The old German government abolished the property tax instead of calculating property and real estate on a realistically higher basis.
This renunciation on the property tax strains the budgetary situation and reinforces social injustice.
The extraordinarily great inequality of assets distribution in Germany - increasing again in the 90s - proves that levying a property tax is appropriate for reasons of social justice. According to the last income- and consumption study (EVS), ten percent of the richest households in Germany had over half (50.4%) of the total net financial assets. In 1993 this share was 46.4%. At the other end of the distribution, the lower half of all households had 7.7% of net financial assets in 1993. This share fell to 4.7% by 1998. While the bottom quarter of households still had a slightly positive share in net financial assets in 1993 (0.1%), the debts surpassed the assets in 1998 (-1.5%). Assets income rose faster than all other kinds of income in the nineties...
Property taxes are common in other countries and contribute considerably to the total tax revenue - over 10% in the US, Great Britain and Japan. When the property tax was raised in Germany in the middle of the 90s, its contribution to tax revenue at 2.8% was far below other comparable countries. Thus it cannot be argued that the reintroduction of the property tax in Germany will create a competitive disadvantage in relation to other countries.
The statement that taxation of assets leads to discrimination against savings through a double taxation of income also erroneously assumes that wealth formation among receivers of higher incomes reflects renunciation on consumption. Whoever has great assets has great power. A property tax would have a very favorable effect because it could mobilize parts of accumulated assets not used in consumption to stimulate aggregate economic demand in the economic cycle through public expenditures...
Therefore we urge the German government and the territorial governments to reintroduce the property tax.
This relatively modest contribution will by no means solve all the financial problems in Germany. Additional tax increases for example reintroduction of the capital-transfer taxes abolished at the beginning of the 90s and greater taxation of speculation profits are necessary in the medium term.
Nevertheless the prompt reintroduction of the property tax would set an important political signal. This would be a clear visible step of political control = away from a policy of economic folly and social polarization to more economic reason and social justice.