Tense financial situation: municipalities want to increase taxes and fees

According to a survey, a clear majority of German municipalities want to ask citizens to pay more because of the tense financial situation as a result of the Corona crisis. 70 percent are planning an increase in taxes and duties, as the auditing and consulting company EY announced on Tuesday for its survey of 300 municipalities with at least 20,000 inhabitants. In 2020 the share was still 64 percent. "Many German municipalities have their backs against the wall today," said EY partner Mattias Schneider. The federal and state governments would have used considerable resources to prevent a debt explosion. "But even in the current year, a lot of money is missing in the coffers of the cities and municipalities," said Schneider.

In particular, the water supply and garbage disposal are expected to become more expensive: around 40 percent of the municipalities are planning this. An increase in property tax has 32 percent on the screen, the trade tax is to go up in 29 percent of the municipalities. Street cleaning (28 percent) and cemetery and parking fees (18 and 17 percent, respectively) are to be increased.

Fewer savings are to be expected in municipal services: only 26 percent of cities and municipalities want new restrictions on their services.

In 2020 it was 23 percent.

"Many municipalities have already greatly reduced their voluntary services, so that there is hardly any potential for savings at this point," said Schneider.

"Especially in structurally weak areas, many municipalities now offer few services that go beyond what is legally prescribed."

Following national crises such as natural disasters, governments often raise taxes, according to a study by the Ifo Institute.

"The majority of crisis-related tax increases happen quickly, either during the crisis or in the year after," said Ifo expert Niklas Potrafke.

In post-crisis years, taxes are increased more frequently than in other years.

The study found that personal income tax, company tax and sales tax in particular increase in such cases.

"In the course of these tax hikes, economic growth has often fallen and income inequality has risen in the countries concerned," said Potrafke.

For example, there was lower growth, especially after tax rate increases as a result of financial crises.