A problem of two halves, LVT implementation in Germany needs political will and an administrative framework. Katherin Renner explains how the EU economic giant has one half of the solution and needs the other.
LVT has been put on the backburner in Germany following the departure of Minister M∏ntefering of the Construction department in the German government.
M∏ntefering was a supporter of land value tax but ran into opposition from the Ministry of Finance, who disfavour LVT and claim it would be unfair. Germany is due to have general elections in September meaning the earliest fiscal reform will surface as an issue is next year.
There is an urgent need for reform. The current German property tax system is based on vastly inaccurate land valuations and punishes development. It uses capital improved values and represents an 10-20% of revenue for local authorities (10-20% of all local revenue). The land and the improvements are assessed and taxed together. The resulting so-called Einheitswerte is the basis of the tax. The last re-valuation of the Einheitswerte took place in 38 years ago in the former West Germany and 67 years ago in eastern Germany. To say these valuations are outdated is an understatement, a point not lost on the federal constitutional court who criticised the undervaluation of property in comparison with other assets in 1995. The valuation amounts to only around 5-30% of the real market value. The present system leads to an inefficient use of land as it gives no economic reason for the owner to make better use of sites. A fundamental change needs to take place, a fact that is generally agreed upon by government institutions.
Despite the political setbacks there are grounds for optimism. At local level in Germany there are independent committes tasked with annually mapping local unimproved land values. The committess are able to give ≤Bodenrichtwerte≤, the average values for valuation zones. These could be used as a base rate for calculating LVT in the area. This will mean that some local authorities will need to create more valuation zones in order to produce accurate land value maps. It would not be new to use the Bodenrichtwerte for tax purposes as they are already used at the moment as a basis for inheritance tax. A pilot study into the viability of LVT was carried out in 2000, the local authorities taking part stated that there are unlikely to be any obstacles to acceptance because the Bodenrichtwert is established and well understood. They added that a pure land valuation would mean significantly lower administrative costs than valuing and expect land markets to become more active, increasing values and the revenue that could be gained from them. They also forecast a reduction in vacant and under-used sites and consequently less urban sprawl.
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