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there is no regional variation in final bills (so it's regresssive); it's based on valuations that are fifty years out of date, which is actually irrelevant as each local council can set its own tax rate (as a pro mille figure); proceeds are collected and spent locally etc.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.