Monday, 8 February 2021

Land Value Tax in Baden-Württemberg

I took part in an online talk/discussion about the introduction of Land Value Tax in B-W on Saturday, led by one of the hardcore Georgists driving it.

The whole process was as slow and painful as you can imagine. They set up an official lobby group in 2012 and spent years getting various existing organisations on board. They explained to the hard left "Die Linke" party that this would reduce inequality; they explained to the Green Party that it is a tax on use of natural resources; they told the NIMBY and nature preservation groups that this would discourage urban sprawl; they told the tenants' organisation that their landlords would bear the tax; they told the construction industry that it would not be a tax on development etc.

The background is that Germany has a very low level Council Tax called 'Grundsteuer'. The average bill per home is less than £400 a year. It's so low, there's not even a monthly instalment option, you just get a bill and you pay it, like you pay the gas bill or your home insurance. It has all the flaws of Council Tax. It bears little relation to the land value; there is no regional variation in final bills (so it's regresssive); it's based on valuations that are fifty years out of date, which is actually irrelevant as each local council can set its own tax rate (as a pro mille figure); proceeds are collected and spent locally etc.

For some reason, the German Constitutional Court (who have a say in these matters - they got rid of Wealth Tax because housing was taxed at lower rates than proper wealth, why not just include housing at market value, the same as everything else?) had decided that Grundsteuer was unconstitutional (not clear why) and the Federal Government had to come up with a fiscally neutral alternative. They came up with a complete fudge of a law that said each State can make up its own rules on some sort of replacement tax on land and buildings. So the lobby group fought hard for eight years, contacting endless politicians and attending hearings at federal, state and local level.

Some states went Home-Owner-Ist and have a flat rate per dwelling (more or less). Bavaria completely missed the point and decided that the tax should be a fixed amount of a few cents for each square metre of interior floor area. Some States base the tax on the total value (which is a step in the right direction, but makes valuations trickier and discourages development). Only in one state did they make any headway - B-W will introduce a low level LVT, payable by the owner/landlord in 2025. B-W is a very wealthy state in the south-west corner (Porsche and Mercedes are based there), which bizarrely enough is run by a Green-Conservative coalition. It had been solid majority Conservative for decades before that. Nordrhein-Westfalen is still prevaricating and could go either way. 

Inevitably, there was the usual Home-Owner-Ist bleating, even though the effective rate will be less than 5% of the site premium. Poor Widows in Mansions and so on. Which is weird, because the annual tax on a mansion near Stuttgart will only go up from £600 to £1,000 or something. People in flats in the periphery will see their annual bills go down from £500 to £300.

The presenter admitted that taken in isolation, the whole exercise had been pretty pointless and replacing Grundsteuer with an LVT of 5% would have precious little effect on anything. But at least they had their foot in the door. He said that it would be great if they could bump up the LVT and reduce VAT in tandem. (He explained that VAT rates are set nationally, so I'm not sure why he picked on VAT as the next on the hitlist).

I pointed out that the next tax to replace must be Grunderwerbsteuer, which is like Stamp Duty. It is a State-level tax (like SDLT in England and Northern Ireland; LBTT in Scotland and LTT in Wales). Each State can set its own flat rate (between 4% and 6.5%, no tiered rates as in the UK) and keeps its own revenues. That's pretty steep, and total revenues are slightly more than the total revenues from Grundsteuer (EUR 16 billion against EUR 13 billion). He agreed, and agreed that this would help get the construction industry on board, but that tax didn't appear to be next on his 'to replace' list (and wasn't up for debate anyway).

That's all really. It reinforced my view that the only way to persuade a government to replace taxes with LVT is via the ballot box. It doesn't matter if 95% of people hate the idea (rightly or wrongly) or simply don't understand the point. If you can get 5% of people voting for a Georgist party, the Big Two will adjust their policies to claw those votes back again. Which is another reason for a Georgist party to be doggedly centrist/apolitical. If it positions itself as hard left, the Tories won't care how many votes it gets; if it positions itself as neoliberal, the Labour party won't care.


Piotr Wasik said...

hi, was it a written text only discussion, or voice discussion? got a link?

Bayard said...

Did the Germans actually manage to find a PWIM?

Pablo said...

The New York Times
May 1, 1910

Lola said...

"...Green-Conservative coalition..." I am not so sure that that is as bizarre as it seems. If Greens could stop being lefty then the natural alliance is between conservatives (the hint is in the name) and Greens. LVT is 'green' and it's 'conservative' (do not confuse 'conservative' with landlordism) which I entirely concede is a major issue with the UK Conservative party, which is actually 'Tory', and Toryism is landlordism.

Mark Wadsworth said...

PW, it was held via Zoom or Teams (I can't remember). The chap just explained all the steps, and at the end fielded a few questions. He said he would send out some notes later on. There were about 60 people watching.

B, no, she is more a hypothetical possibility, like Dark Matter.

P, so this is round two, 125 years later?

L, B-W is old-fashioned conservative/Christian and quite Home-Owner-Ist. Their unofficial state motto is "work, work, buy a house".

Lola said...

MW. Well at least it's work work buy a house. Not susbsidy subsidy buy a house - and rent it to some other poor sucker.

mombers said...

Great news, if a small step. Was surprised to see that Germany has a pants system like council tax. It's quite a federal country I think, so how do the states raise their own taxes? Or is it like here, where Whitehall takes 95% of taxes, then gives large amounts of it back via welfare to ameliorate the deadweight damage on more marginal regions?

Mark Wadsworth said...

L, they do that as well. My auntie lives there and owns a block of three flats, lives in one, rents one out and rents the top floor out to her company which is nearly 100% funded by the government :-( But otherwise she and her hubby are really nice, so I didn't want to start an argument.

M, the German tax system is a bit more devolved than ours. Each state can make its own tweaks, like Scotland or Wales. But like ours, the biggest taxes are VAT, income tax and National Insurance (in all its guises).

Lola said...

MW. Sigh. The World is drowning in rent (and subsidy) seekers...even really nice ones.

Mark Wadsworth said...

L, to top it all, she's a Green Party councillor on the metropolitan council.

Piotr Wasik said...

MW, pls loop me in if you have notes if possible. I want to see the names :-)

Bayard said...

"The Hunting of the Pwim"

"Just the place for a Pwim!" the Bellman cried,
As he landed his crew with care;...

Mark Wadsworth said...

PW, will do.

B, PWIMs aren't hunted or even stalked. They're like unicorns, seldom seen but much revered. They must be left alone, lest they be frightened off. If humans go near their nests, they flee, never to return, like birds. And their Treasured Family Home disappears under the rules of the Missing Homes Conundrum.

Derek said...

Seldom seen but much revered? Sounds like a Snark alright. It might be a PWIM. But beware! It might be a Boojum!

"There is Thingumbob shouting!" the Bellman said,
"He is shouting like mad, only hark!
He is waving his hands, he is wagging his head,
He has certainly found a Snark!"

They gazed in delight, while the Butcher exclaimed
"He was always a desperate wag!"
They beheld him—their Baker—their hero unnamed—
On the top of a neighbouring crag,

Erect and sublime, for one moment of time,
In the next, that wild figure they saw
(As if stung by a spasm) plunge into a chasm,
While they waited and listened in awe.

"It's a Snark!" was the sound that first came to their ears,
And seemed almost too good to be true.
Then followed a torrent of laughter and cheers:
Then the ominous words "It's a Boo—"

Then, silence. Some fancied they heard in the air
A weary and wandering sigh
That sounded like "-jum!" but the others declare
It was only a breeze that went by.

They hunted till darkness came on, but they found
Not a button, or feather, or mark,
By which they could tell that they stood on the ground
Where the Baker had met with the Snark.

In the midst of the word he was trying to say,
In the midst of his laughter and glee,
He had softly and suddenly vanished away—
For the Snark was a Boojum, you see.