Breaking a Berlin social taboo, I spoke to a stranger in a cafe

Eventually the sighs from the next table grow too loud to ignore and, breaking a Berlin social taboo, I speak to a stranger in a cafe.

Felix, the sigher, insists he is fine, while pointing down at three A4 pages of barely legible print before him: his property tax statement from the local tax authority, the Finanzamt.

“I don’t know what the Finanzamt want from me now,” he moans, right knee bobbing up and down with anxiety.

Studying the three pages of tiny print and no discernible layout, all I can see are dense paragraphs and monster 27-letter words like “Hauptfeststellungszeitpunkt”. Mark Twain remarked that the German language has words so long they develop their own perspective. This three-page tax abomination offers several examples of this species – and two telling perspectives.

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The first is the chaos of modern German bureaucracy, typified by a five-year effort to reform the property-tax system.

Back in 2018 the constitutional court struck down the existing system as too antiquated to be fair. In western German states, the tax drew on land values last calculated in 1964; in eastern states, bizarrely, the land values being used dated from 1935 – the Nazi era.

The distortions were allowing homeowners in Munich – today Germany’s most expensive city – pay less tax than smaller cities such as Wiesbaden. Meanwhile in Berlin, homeowners in western districts faced property tax values four times higher than in eastern districts.

At €15 billion, the property tax take is a major source of income for states and local authorities. Modernisation would generate even more money for schools, childcare, pools and libraries.

But generation after generation of politicians were so afraid of their own complicated property-tax system that they preferred to leave it untouched.

When the constitutional court offered them no choice, the federal government and 16 federal states spent four years arguing over the best way to grab the nettle. Unable to agree on one solution, they came up with several, then passed the unpleasant part on to property-owners.

Just 54 per cent of tax returns were returned by January 2022, the final deadline

This time last year, the country’s property owners hunkered down over temperamental tax office software called Elster, trying their best to fill in poorly-designed online forms.

“I spent an entire weekend on Elster, but there were constant errors – or bugs – that wouldn’t let me get through to the end of the form,” says Felix. “I gave up on that and went to the tax office for a paper form, but they had none, so I just abandoned it.”

Just 54 per cent of tax returns were returned by January 2022, the final deadline, with many furious that the state was asking citizens to collate on its behalf information it already held on them.

Calls for a mass tax boycott came to nothing, however, and most regions say that over 90 per cent of returns on 36 million properties in Germany have now been filled. Laggards like Felix have received estimated tax statements – including a warning that they may still be fined.

Put simply, Germany’s new property tax is calculated according to the value of the property and the buildings or business operations that stand on it, multiplied by the local tax rate to provide the total tax amount.

Other factors such as net average rent for the district and the age of the building also play a role in the level of the new tax, due from 2025. If, that is, Germany even gets that far.

Two weeks ago a tax court in the southwestern state of Rhineland-Palatinate, accepting two challenges for hearing, expressed “serious doubts about the constitutionality of the underlying valuation rules” of the property tax.

In preliminary remarks on the case, the court said they could not see how the tax return’s resulting values, the basis of any future property tax, bore any relationship to real-world property values.

Such a challenge to the property tax, devised by Olaf Scholz in his previous role as finance minister, would be another serious blow to the chancellor’s credibility.

And such a challenge may force even greater reform of the tax system. With 50 tax types, 200 laws and 100,000 regulations, defenders of the German system say it tries hard to be equitable by offering tailor-made tax returns. Like 90 per cent of Germans, however, Felix complains that it is too complicated.

“They try for equity but forget fairness,” says Felix, folding up his form. “If they made it easier to file the damn property tax return I would. Now I’m just going to wait and see.”