- Almost every second NRW municipality has increased the property tax B
Property owners should brace themselves for higher real estate taxes**, according to the Federal Association of Taxpayers (BdSt). "We've found that nearly half of the municipalities in North Rhine-Westphalia have increased their rate for real estate tax B this year," said deputy state chairman Eberhard Kanski of the German Press Agency in Düsseldorf. The real estate tax reform that took effect at the beginning of the year is causing further increases and distortions to be feared.
New dimension in high-tax state North Rhine-Westphalia
The extent of the increases has reached an unprecedented dimension in decades, according to an analysis of the rates in the 396 municipalities in the state. Both as a "residential tax" and as a location factor for businesses, this magnitude urgently requires state intervention.
"The increase is breaking all dams," summarized the municipal finance expert. "We're back at a new episode in history: High-tax state North Rhine-Westphalia." Here, on average, the highest real estate tax B rates are levied nationwide.
"We've found that, for the first time in the history of North Rhine-Westphalia, a municipality has a rate of over 1,000 points," reported Kanski. "1,000 was always a sound barrier, and it has been exceeded in Niederkassel." The rate is a crucial factor in determining the tax.
Lavish rates in many regions
In addition to Niederkassel in the Rhein-Sieg district, there are also very high rates in many other regions: for example, in the districts of Düren, Recklinghausen, and Unna, as well as in several Ruhr area cities such as Gladbeck, Mülheim, Duisburg, or Herne. Low rates can be found in the districts of Gütersloh, Mettmann, and Borken, as well as in Düsseldorf.
Real estate tax B is levied on built and buildable properties and is paid by owners - ultimately, tenants are also affected through ancillary costs. Starting January 1, 2025, property owners in Germany will have to pay the tax using a new calculation method. Around 6.5 million properties in NRW alone will need to be revalued for this purpose.
In NRW, the state parliament has given municipalities the option to set different rates for residential and commercial properties in the future, instead of a uniform rate. This is intended to avoid excessive burdening of residential property owners. The value of residential properties has increased significantly compared to commercial properties in many places over the past few decades.
Overall, the real estate tax reform is intended to be "revenue-neutral" for municipalities, meaning that despite the changed assessment bases, their total income should remain the same. To ensure this, the Ministry of Finance in Düsseldorf has already published a model table that municipalities can use as a guide.
Revenue neutrality applies to municipalities, but not to individual taxpayers, explained Kanski. "There will be changes." Due to the numerous increases this year - in 177 out of 396 municipalities - the rates provided by the Ministry of Finance may no longer be up-to-date in every case.
If local budget discussions lead to higher tax rates than those mentioned by the Ministry of Finance, citizens should take action - for example, by submitting objections to the city council, Kanski advised. "Citizens actually have some arrows in their quiver that they can shoot."
The most expensive and cheapest municipalities
According to an analysis by the Taxpayers' Association, the highest tax rates for property tax B are currently in Niederkassel (1100) and Alfter (995), both in the Rhein-Sieg district, as well as Xanten in the Kreis Wesel (995). At the other end of the scale are Verl (170) and Schloss Holte-Stukenbrock (280) in the Kreis Gütersloh, as well as the renowned Monheim am Rhein (282) for low tax rates.
Only one municipality, Büren in the Kreis Paderborn, has reduced the property tax - but only by one percentage point (to 514). The largest percentage increase in taxes is in the Rhenish city of Eschweiler, with a 72 percent increase.
There are numerous reasons why municipalities need more money, Kanski said. These include inflation, rising interest rates, a weakening economy, and high costs for social services and housing refugees. "And the cities then get that through property tax B."
Smaller slice of the pie for municipalities
To stop the tax spiral, municipalities should be more involved in state tax revenues, the Taxpayers' Association demands. Currently, they only receive 23 percent. In the time of the former Minister President Johannes Rau, the rate was still 28 percent. "The slice of the pie that the municipalities get is smaller."
Together with the homeowners' association Haus & Grund, the Taxpayers' Association has filed a lawsuit against the federal model of property tax reform. If the levy is again deemed unconstitutional, the Taxpayers' Association argues that the property tax should be completely abolished. Instead, they could receive a tax rate on income and corporation tax and a larger share of VAT. The property tax remains 100 percent with the municipalities and is one of their main sources of income.
"Abandon parochial thinking"
In addition to an old debt solution for municipalities, stronger self-efforts for budget consolidation are also necessary, Kanski emphasized, who has worked as an honorary "savings commissioner" in various cities. This includes more intermunicipal cooperation - from administration to culture and sport to joint industrial areas. His recommendation: "Abandon the famous parochial thinking."
The Commission, in this context, could benefit from the assistance of the Member States in devising strategies to address the rising real estate taxes, especially in high-tax state North Rhine-Westphalia. The assistance could help in finding solutions to prevent further increases and distortions caused by the real estate tax reform.
Given the unprecedented increases in real estate taxes in North Rhine-Westphalia, the Member States could provide valuable insights and potential solutions, considering their experiences in managing similar situations in their own jurisdictions.
