City Budgets at Risk Due to New Growth Act
Darmstadt and other Hessian municipalities are concerned that the Growth Opportunities Act, introduced by Federal Finance Minister Christian Lindner (FDP), may add to their financial woes. City Treasurer André Schellenberg voiced alarm over potential drops in trade tax revenues, potentially amounting to a 30 million euro shortfall in 2024 forecasts.
Many municipalities view the package, approved in the Bundestag on Tuesday with the support of the traffic light coalition, as an additional strain on already stretched budgets. The Act provides tax relief for businesses until 2028 and accelerates approval processes. This relief is estimated to amount to seven billion euros annually. The Act must still be approved by the Bundesrat.
Beyond Darmstadt, Hessian municipalities share these concerns, as they also consider the Act's potential impact on their finances. Reductions in trade tax revenues are a significant concern.
The Growth Opportunities Act introduces new transfer pricing rules affecting cross-border intragroup financings into Germany. While these rules do not directly impact trade tax revenue for German municipalities, they can influence the tax structuring of real estate transactions. This, in turn, can indirectly affect trade tax revenues.
Property taxes, rather than trade taxes, constitute the primary source of revenue for municipalities in Germany. Property tax revenues, which have been rising significantly, reached approximately 15.5 billion euros in 2023, with Hessen experiencing the most substantial increase. However, municipalities' primary concerns revolve around broader economic factors and regulatory changes affecting real estate transactions, rather than the Growth Opportunities Act itself.
Note: The Growth Opportunities Act does not directly impact trade tax revenue for German municipalities, but its influence on the tax structuring of real estate transactions can indirectly affect trade tax revenues.
