Court rules ‘reunification tax’ unconstitutional

In a ruling with potentially wide-ranging fiscal consequences, a court in the state of Lower Saxony on Wednesday ruled a long-standing “solidarity tax” to help fund German reunification was unconstitutional.

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Judge Georgia Gascard ruled in favour of a plaintiff suing against paying €1,000 for the Solidaritätszuschlag on top of his 2007 income taxes. He argued the surcharge meant to fund the reconstruction of Germany’s formerly communist eastern half was never meant to be levied indefinitely.

The costs for German reunification “is a long-term necessity that cannot be covered by levying a supplementary tax,” which Gascard said was allowed only temporarily according to a legislative procedure from 1954.

The judge has referred the case to Germany’s highest court in Karlsruhe for ruling on the fundamental constitutionality of the Soli, which was first introduced in 1991 shortly after reunification. Should the Constitutional Court confirm Wednesday’s ruling, the government could face a gaping hole in its budget.

After several incarnations in the 1990s, the special tax has been set since 1998 at 5.5 percent of income taxes, capital gains and corporate taxes. A direct tax, it brings in roughly €12 billion each year for the federal government. However, the funds do not necessary support reconstruction efforts in eastern Germany, exposing it to criticism from taxpayer groups.

“It’s unthinkable to me that a supplementary tax can become a permanent tax,” said Karl Heinz Däke, the president of the German Taxpayers Association. “The decision today makes it hard for politicians to levy other special taxes.”