A surge in municipal business tax rates is raising concerns about Germany’s economic competitiveness and exacerbating tensions between local governments, the federal government and businesses. A new analysis by the German Chamber of Industry and Commerce (DIHK), published by “Welt am Sonntag”, reveals that the average business tax levy across the country has reached a record 438 percent this year, a one-point increase compared to previous levels.
Sixty-four municipalities increased their business tax rates, while only four lowered them, highlighting a widespread trend of local authorities seeking increased revenue. Oberhausen and Mülheim currently hold the highest rates at a substantial 580 percent, while Leverkusen and Monheim have the lowest, registering at 250 percent.
Municipal officials claim these increases are unavoidable given the considerable financial pressures they face. Uwe Zimmermann, Deputy Secretary-General of the German Association of Cities and Municipalities, defended the rises, stating that a projected 30 billion euro deficit for municipalities this year necessitates “measured” tax adjustments. He indicated that further increases are likely in coming years.
However, local authorities are keen to deflect blame, arguing that their deficits are not self-inflicted. Christian Schuchardt, Secretary-General of the German Cities Association, points to escalating social costs and responsibilities mandated by the federal and state governments but inadequately funded. He warned that further increases in local real estate taxes, alongside the business tax, are inevitable unless municipalities receive “rapid and significant relief”. Schuchardt specifically calls for a larger share of communal taxes and a reduction in the regulatory burdens placed upon local governments.
The DIHK’s chief executive, Helena Melnikov, voiced strong criticism regarding the business tax system, labeling it a “German peculiarity” that uniquely burdens businesses with regional tax loads in addition to corporate and income taxes. Despite years of reform proposals, she notes, progress remains stalled due to a combination of municipal resistance and a lack of support from state governments. Melnikov issued a stark warning: “If things go badly for Germany, we will see relocations of sites or productions beyond the German borders.
The escalating situation underscores a deeper systemic problem: a chronic underfunding of local governments and a widening disparity between the responsibilities placed upon them and the resources available to fulfill those responsibilities. The tension between the imperative for local revenue generation and the potential impact on business competitiveness is likely to remain a contentious political issue.