Wealth tax

Internationally, wealth tax is becoming obsolete. Over the past three decades, numerous countries that once levied a wealth tax have abolished it (e.g. Austria, Denmark, Italy, the Netherlands and Sweden). And with the exception of Spain, no major industrialised country has reintroduced wealth tax in the past decade.

French President François Hollande imposed stricter wealth taxation in 2012, which led to many wealthy people relocating to other countries. In 2017, President Emmanuel Macron largely revoked this regulation and converted the wealth tax into a real estate tax with much lower revenue in an effort to make the country more attractive to high earners again.  

Hardly any countries still levy wealth tax

According to an overview in the Country Index for Family Businesses (2021), legal entities are subject to a wealth tax in the Swiss Canton of Zurich, in France, Japan and the US state of California. The index examined a total of 21 industrialised countries. To this we must add Spain, where a wealth tax has been levied on natural persons since the financial crisis.

In the countries that have abolished wealth tax, the tax revenue generated from it played a relatively minor role. The last time it was levied in Germany and Austria (1996 and 1993 respectively), it accounted for about one percent of the total tax revenue.

Wealth tax of just one per cent increases the tax burden enormously

Introducing a wealth tax would lead to a drastic tax increase. In 2014, Germany’s Social Democratic Party presented a bill aimed at introducing a wealth tax of one per cent with a tax-free amount of two million euros. The bill also contained statements about the expected burdens: “Imposing a permanent wealth tax of one percent on actual market values equates to an additional 33 percent burden on income at a three percent rate of return.” 

This shows that the introduction of wealth tax would constitute a major tax increase. Although a tax exemption for business assets is repeatedly put forward as a way of reducing the harmful effects, there are no plausible concepts for this so far.

Wealth tax is constitutionally questionable

Moreover, wealth tax should not be considered in isolation, as it is closely related to existing taxes on income from assets in the form of income tax (final withholding tax) as well as inheritance tax. The Federal Constitutional Court of Germany has declared it inadmissible to impose a tax on total assets that exceeds the income from assets. Any tax payment which cannot be raised through income from assets alone and requires tapping into the company’s total assets must be regarded as a confiscatory burden. 

Wealth tax is inefficient – and creates a huge bureaucracy

The Federal Constitutional Court demands that all types of assets be valued at market value. The survey effort associated with this would be enormous – a fact that plays far too small a role in the regularly recurring debate.

Wealth tax has negative consequences for family companies

If the wealth tax is introduced, family businesses will have to react. Such a drastic deterioration in tax conditions is likely to have the following effects from the point of view of family businesses:

  1. Companies would have to reduce their costs and investments in order to bear the increasing tax burden. 
  2. They could raise their dividend payments, which would reduce the amount of profit reinvested in the company. However, family businesses in particular retain large parts of their profits in order to finance future growth, and this growth would then be more difficult. 
  3. Companies could move abroad to reduce their tax burdens. Foreign companies that are not subject to wealth taxation at their locations could take over business segments from German companies and move to their locations.

All these options, however, would come at the expense of investment power, jobs and locations. 

The better alternative

After the financial crisis of 2008, Germany managed to restructure the national budget without major tax increases (with the exception of the air transport levy). It was able to do so thanks to a reliable fiscal policy that was conducive to growth. The country’s total tax revenue thus rose from 524 billion euros in 2009 to 799 billion euros in 2019. The federal government should therefore follow this path once again.


Roland Franke

Roland Franke

Head of Tax and Finance Policy

The House of Family Businesses

Phone: +49 (0) 30 / 22 60 529 12
Fax: +49 (0) 30 / 22 60 529 29

E-Mail: franke(at)familienunternehmen-politik.de