In an expert opinion, the President of the Federal Audit Office (Bundesrechnungshof), acting as Federal Commissioner for Efficiency in Public Administration (BWV), assesses the legal and fiscal aspects of the governing coalition's planned phase-out of the solidarity surcharge. "The Federal Government should abolish the solidarity surcharge completely and swiftly," recommends the President of the Bundesrechnungshof, Kay Scheller, in his capacity as BWV. "To this end, it should provide the necessary planning reserves in the new financial plan for 2019 to 2023." Under the governing coalition's plans, middle and lower incomes are to be relieved of the solidarity surcharge from 2021 onwards. Beyond that, the solidarity surcharge is to be continued unchanged past the end of the financial planning period. "This approach entails considerable risks – both constitutional and fiscal," said Scheller. "The legal basis for the solidarity surcharge ceases to apply at the end of 2019. As in the case of the nuclear fuel tax, there is a real risk that the Federation will be ordered to repay taxes amounting to billions." This would tear a substantial hole in the Federation's financial planning, Scheller said. According to the BWV's assessment, a complete phase-out would be feasible at least by the end of the new financial planning period in 2023 – also in view of the requirements of the debt rule. "That is what realistic budget and financial planning, making adequate provision, would look like," Scheller explained. In its expert opinion, the BWV makes proposals on how the revenue shortfalls compared with current financial planning could be offset. These include a critical review of the Federation's payments for tasks of the Länder and municipalities, as well as of the numerous tax concessions. To avoid revenue losses, the income tax tariff could, where appropriate, also be restructured. Insofar as the government wishes to maintain the spread in the income tax burden envisaged in the coalition agreement, the solidarity surcharge – introduced to finance German reunification – is the wrong instrument. Source: BRH, press release of 4 June 2019 (il)
Frequently asked questions
Frequently asked questions
Why does the German Federal Court of Auditors call for the complete abolition of the solidarity surcharge?
The Federal Court of Auditors sees significant constitutional and fiscal risks in only partially retaining the solidarity surcharge. Since the legal basis for the surcharge expires at the end of 2019 with the conclusion of Solidarpakt II, there is a risk that the federal government could be ordered to pay back billions in taxes—similar to the nuclear fuel tax case. A complete and prompt abolition would be more legally secure.
What does the German federal government plan regarding the solidarity surcharge from 2021?
According to the plans of the governing coalition, middle and lower incomes are to be relieved of the solidarity surcharge from 2021. For higher incomes, the Soli is to be continued unchanged beyond the end of the financial planning period. A complete abolition is therefore not envisaged.
By when does the Federal Court of Auditors consider a complete abolition of the Soli feasible?
According to the Federal Commissioner for Efficiency in Public Administration (BWV), a complete phase-out of the solidarity surcharge would be possible by the end of the new financial planning period in 2023. This would also be compatible with the debt rule, provided that corresponding planning reserves are included in the 2019–2023 financial plan.
What proposals does the Bundesrechnungshof make to offset the revenue shortfalls?
The BWV proposes a critical review of federal payments for tasks of the Länder and municipalities, as well as of the wide range of tax concessions. In addition, the income tax schedule could be restructured to avoid revenue losses. These measures would offset the shortfalls compared to current fiscal planning.
Why is the Soli not a suitable instrument for spreading income tax rates, according to the BRH?
The solidarity surcharge (Soli) was originally introduced to finance German reunification and is earmarked for that purpose. According to the Bundesrechnungshof (Federal Court of Auditors), if the government wants to achieve a greater spread of the income tax burden, the appropriate approach would be to adjust the income tax rate schedule itself, not to selectively retain the Soli for higher incomes.