Corona crisis: historic slump in trade tax

The corona crisis leads to a historic slump in trade tax – the most important source of revenue for municipalities.

"At the end of the year, municipal budgets will suffer such high losses as we have never experienced before," verena goppert, deputy chief executive of the german association of cities, told the german press agency. "Trade tax has plummeted catastrophically in the past three months."

In the second quarter, trade tax shrank to half the level of the previous year, she said, referring to a survey of cities on the development of trade tax revenue. In the first half of the year, trade tax revenue fell by around 28 percent overall – but this includes months before the outbreak of the crisis.

As a result of the epidemic, with massive restrictions in public life, many companies have seen their sales and orders fall away, causing a sharp drop in earnings. According to the city council, the total trade tax revenue last year amounted to 55.4 billion euros nationwide.

Goppert said it was right that the federal government and the state had agreed on a trade tax equalization for this year. "This helps us so that we can continue to invest and important projects are not slowed down. Municipalities make more than half of all public investments. For example, schools and daycare centers are being built or sustainably renovated."

The black-red coalition had announced that the federal government would take over almost six billion euros in trade tax losses. In addition, the federal government wants to contribute more to the costs of housing for job-seekers. The aim is to ensure that municipalities remain able to act and do not have to close facilities such as libraries or swimming pools in order to save money. They should also be able to invest – this is important for the construction industry and the skilled trades, for example.

"The trade tax equalization of federal and state governments has been agreed upon once for this year. After the summer recess, the federal government and the states must take a look at how things are going to proceed from next year," says goppert. "Because even if the corona pandemic can be well controlled next year, the revenues of the municipalities will continue to be severely marked by the crisis. In order for the municipalities to function as an anchor of stability, they will probably need support in 2021 and 2022 as well."

As a result of the corona crisis, the german economy is expected to slide into the worst recession since the second world war this year. It is uncertain exactly when the upturn will come, how strong it will be and when the economy will return to its pre-crisis level.

According to the city council, business tax revenues vary greatly from city to city: many cities have seen declines of more than 70 percent, and at the top of the range, even more than 80 percent. In other cities, the corona crisis has – at least so far – not had such a serious impact on business tax revenues. Goppert said: "therefore, when distributing the funds, care must be taken to ensure that the actual trade tax shortfalls are offset. Average rates do not help to plan municipal budgets with certainty."

The deputy chairman of the FDP parliamentary group, christian durr, spoke out in favor of reform in view of fluctuations in the trade tax: "for example, by abolishing the trade tax and instead allowing municipal surcharges on the income tax. This would offer municipalities much more stable sources of income than the previous trade tax."It is also time to create incentives for investment so that the economy can get back on track and tax revenues can also rise again. For this reason, the first step was to reduce the corporate income tax from 15 to 12.5 percent.

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