One Day After the Federal Election – Is a Wealth Tax Coming?

According to the provisional final result of the 2021 federal election, the SPD has won.

Alongside relief for low and middle incomes and a call for inheritance tax reform, the SPD's party manifesto includes a clear "yes" to a wealth tax.

A wealth tax levies a charge on the total net assets of a taxpayer; the tax base therefore encompasses all values expressed in monetary terms, less liabilities.

It was already levied in antiquity in the Roman Empire, and has been widely used internationally as well. The principal argument in favour of the tax is the ability-to-pay principle (Art. 3 para. 1 of the Basic Law); the principal arguments against it are its negative effects on economic growth (including studies by EY and the ifo Institute) and, in particular, its deterrent effect on international investors.

The wealth tax has been suspended since 1997, when the Federal Constitutional Court ruled that the specific form in which the tax was designed was unconstitutional. The SPD now seeks to change this in order to narrow the gap between rich and poor. According to the International Monetary Fund (IMF), the wealthiest one per cent of private households hold approximately one third of net wealth.

Olaf Scholz is proposing a wealth tax of 1% per annum on net assets above two million euros. Under this proposal, there would be no exemption for owner-occupied residential property, let alone for rented property. With rising land and residential property prices, a wealth tax would therefore quickly become relevant even for small business owners saving for retirement, not only for the super-rich.

It remains to be seen in what form a wealth tax might prevail in the coalition negotiations; it will in any event remain a very serious issue.

In the context of strategic holistic advisory services for businesses and entrepreneurs, a new variable is likely to be added to the equation before long. We will keep you informed!