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POLITICS

From climate action to ‘Soli tax’: What you need to know about Germany’s planned changes

Angela Merkel is returning from her summer break on Monday, but she's in for a busy few months ahead. From climate change action to tax amendments, this is what the government is planning.

From climate action to 'Soli tax': What you need to know about Germany's planned changes
The solidarity tax will be reduced. Photo: DPA

It’s been a busy year for the Chancellor so far due to an unsettled political climate in Germany, Brexit – and even her own personal health concerns.

So it’s no surprise that Merkel looked relaxed on her summer holiday where she's been taking a few weeks of rest with her husband.

She is set to return to work this week and faces a rocky road with three upcoming eastern state elections and issues that are dividing the population (and the government). Can Merkel's coalition survive?

What's the outlook?

The coalition (known as the grand coalition or GroKo) is made up of Merkel’s Christian Democrats (CDU) and its Bavarian sister party (CSU), along with the centre-left Social Democrats (SPD). 

Things have been shaky between the two parties from the very beginning of their most recent union following the 2017 federal election. But both parties – typically known as the Volksparteien (people’s parties) in Germany – are under increasing pressure with three regional votes coming up. 

After dismal results in recent state elections, such as Bavaria and Hesse last year, and in the European parliamentary elections in May, both parties face heavy losses when voters in Saxony and Brandenburg go to the polls on September 1st, and in Thuringia on October 27th. 

The SPD, currently in free-fall after historically low results in state elections over the past year, are looking for a new leader and there is never-ending speculation about the party pulling out of the coalition which would 'break' the government and lead to elections.

If the GroKo doesn't split apart then the next federal elections are to take place in 2021. Merkel has already said she will bow out of politics and step down as chancellor after this term ends.

Adding to the uncertainty is the possibility of a no-deal Brexit and various domestic issues concerning climate change and migration.

Merkel on her birthday, July 19th, before her summer break. Photo: DPA

Here are some of the major issues that Germany wants to tackle in the coming months:

Climate protection

This topic has been thrust into the spotlight due to action led by activists like Greta Thunberg and the Fridays for Future movement. And Germans have become increasingly concerned about the effects of climate change.

That worry has translated into soaring support for the Green party, which has been neck-and-neck with the Christian Democrats in some recent polls (and even topped a few polls).

Meanwhile, another recent survey showed German voters are in favour of drastic action to protect the climate, such as making flying more expensive and travelling by rail cheaper.

All parties are taking note of this and the Climate Cabinet will meet on September 20th to decide the government’s action plan to reduce CO2 emissions. 

CDU leader Annegret Kramp-Karrenbauer on Sunday called for an overhaul of the country's tax system in order to better align Europe's largest economy with its environmental goals.

In the Welt am Sonntag newspaper, Kramp-Karrenbauer, who is also Germany’s Defence Minister, and Union deputy leader Andreas Jung, said tackling climate change deserved to be a top priority in the government's agenda.

She said Germany should offer businesses and residents further incentives to help reduce carbon emissions, such as subsidies for the development of climate-friendly fuels and to improve the energy efficiency of buildings.

Kramp-Karrenbauer also called for the inclusion of sustainable development as a state goal in the constitution, but said she didn't support a 'CO2 tax', an idea that's been debated in recent months.

The budget 2020

How will Germany spend its cash next year? Finance Minister Olaf Scholz, of the SPD, has been calculating what Germany can afford, when and how.

But the Finance Ministry is not known for offering much flexibility. One of the main questions is: how will climate protection be financed? This will require some creative thinking, and possibly new debt – something that Germany as a country is averse to.

Discussions on the budget are likely to take place in September. 

A Fridays for Future march in Hamburg on June 14th. Photo: DPA

Basic pension

Earlier this year, Labour Minister Hubertus Heil, of the SPD, presented his plan on introducing a basic pension (Grundrente) in Germany. It would see people who have clocked up 35 years of work, raised children or cared for relatives receive a supplement to their pension. It is intended to help those who receive a small pension.

But the Union is opposed to the basic pension being paid if the person concerned is not in need – for example, if that person has a partner with a good income who can support them. The coalition agreement also provides for means testing. However, Heil (SPD) insists on the model without means testing to avoid bureaucracy.

Housing

Several planned measures for tenants and house buyers are being debated in the government. For example, Justice Minister Christine Lambrecht (SPD) wants to see that landlords have to pay back excess rent retroactively if they violate the rent brake – a controversial proposal.

There is also a planned reform of the rent index, which will be used to determine how much rent can increased by.

A housing summit is planned to take place on September 21st.

Care crisis

In order to attract more urgently needed nursing staff, the government is planning a whole range of measures. Among other things, care givers should receive better pay and have improved working conditions, according to Health Minister Jens Spahn.

READ ALSO: How Germany plans to fight its drastic shortage of care workers

But it could cost up to five billion euros per year and there have not been concrete discussions on where that money could come from. Ordinary people may face higher contributions to pay for it.

Reducing the 'Soli tax'

But there are changes ahead for taxpayers in Germany. Finance Minister Olaf Scholz presented a draft bill last week for approval to other government ministries, which would see 90 percent of taxpayers completely freed of the solidarity contribution from 2021. The tax, known as the “Soli,” amounts to 5.5 percent of income tax and corporation tax.

For 3.5 percent of taxpayers – the top earners – the Soli will still be in place at the current rate. Meanwhile, another 6.5 percent of taxpayers would see their Soli contribution reduced. 

The payment, which brought the state €18.9 billion in 2018, was first introduced in 1991 to help cover the costs of reunification and invest in infrastructure in the former East Germany. It was originally meant as a temporary measure but was made permanent in 1995.

A 'Solidary Pact' was then agreed in 2001 in a bid to financially support the eastern German states but that pact expires at the end of this year.

The CDU is pushing to get rid of the tax completely.

Schools and daycare improvement

More than €10 billion of government cash is expected to go to schools and day care centres (Kitas) in the coming years through the “Gute-Kita-Gesetz” (Good Kita Law) and the “Digitalpakt Schule” (School Digital Pact).

All of Germany's states will receive funding to improve the number of day care staff and create better working conditions and longer opening hours (which means more Kita spots) as well as pushing up education quality.

A Kita in Düsseldorf. Photo: DPA

An overview of how eager German schools have been to access and use the funds from the Digital Pact, aimed at upgrading digital equipment, should be available in autumn. The money has been available since May.

Security policy

Should the expiring mandate for the Bundeswehr (German army) mission against the terrorist group Islamic State (IS) in Syria and Iraq be extended? The CDU/CSU and Foreign Minister Heiko Maas (SPD) believe this could be a good idea but SPD faction leader Rolf Mützenich rejected an extension.

SEE ALSO: More women soldiers and less equipment: A look at Germany's army in numbers

A decision is also pending on the future of the arms export ban to Saudi Arabia, which will expire at the end of September.

International headaches

Brexit continues to cause stress for Europe and Germany has upped its preparations for a no-deal amid fears of job losses and uncertainty over the market.

Merkel has invited Boris Johnson to Berlin following his appointment as Prime Minister.

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PROPERTY

What to know about mortgages and fees when buying property in Germany

When buying a property in Germany there are a few key differences to other countries regarding mortgages and fees. We asked one expert to walk us through some of what you can expect - especially as a foreigner in Germany.

What to know about mortgages and fees when buying property in Germany

Interest rates might be up on the back of rising inflation, but prices in Germany are down by anywhere between 3 and 10 percent lately, depending on the area and type of property.

According to Peter Kleinwächter, an experienced mortgage broker and senior consultant with MLP Berlin, that may give certain types of buyers a chance to snag a place at a better price. Speaking on The Local’s Germany in Focus podcast, released February 3rd, Kleinwächter said that buyers are in a good position right now, especially if they negotiate directly with a developer.

But they’ll probably have to act quickly, as he expects interest rates to eventually come down and prices to go back up, especially with German governments missing housebuilding targets and a continuing shortage of affordable homes.

The true cost of buying a home in Germany is hidden at first though, with certain processes and fees being applicable that people from abroad may not be used to. In addition, non-citizens may have a harder time getting a mortgage.

READ ALSO: Ask an expert: Is now a good time to buy property in Germany?

Who can get a mortgage?

Legally speaking, there’s no rule on the books saying a non-citizen resident in Germany can’t get a mortgage.

In practice though, many banks will not lend to non-EU citizens who are resident in Germany on temporary visas – even the EU Blue Card for skilled workers. Someone who is an EU citizen typically has no issues with banks based on immigration status at least. In principle, all banks are also open to non-EU citizens who have permanent residency in Germany.

Some banks though, including Kleinwächter’s own, not only work with EU Blue Card holders in Germany, but specialise in those cases.

Houses in Leipzig

Houses in Leipzig, a current “trend city” in Germany. Photo: picture alliance/dpa | Jan Woitas

Kleinwächter’s advice is to not get discouraged if a bank turns you down and to shop around for one that’s familiar in dealing with foreigners. Many conventional banks may have people who speak English, but not to the necessary level. Others simply won’t understand how much the homebuying process in Germany may differ from back home.

“You need someone holding you hand during the whole process, not only the application process when finding the right bank, but also when it comes to applying for the loan because of all the paperwork,” says Kleinwächter.

READ ALSO: What experts say will happen to the German housing market in 2023

How much money do I need set aside?

Kleinwächter says the average deposit required for a mortgage has increased significantly in the last two years, going up around €30,000 to a current average of €150,000 for a typical German property.

Kleinwächter says once you have your deposit together, you can get a loan approval that you can bring with you to home viewings.

“That’s show that you’re serious,” he says.

Once you decide on a place, all German property transactions have to go through a notary, acting as neutral for both parties. Kleinwächter describes this as “when the money counter starts.”

Both buyer and seller will typically sit through a long appointment with the notary while he or she reads out the entire contract and makes sure everyone understands it. Internationals not fluent enough in German to discuss property law may be told to bring along an accredited interpreter. Depending on the length of the appointment, the interpreter’s bill could also run up to several hundred euros.

The notary themselves will set you back up to two percent of the purchase price, with the fee declining the higher the purchase price is and the lower the loan amount.

The fees don’t end there.

You may also have to pay a real estate agent fee – basically the agent’s commission – with the buyer and seller splitting it and shelling out up to 3.57 percent each.

However, there is one way to get by this fee, if you’re willing to buy a new place.

“If you buy something from a developer, you usually don’t have to pay any property agent fee because you’re buying directly from the producer,” says Kleinwächter.

Other types of property, like Kapitalanlagen – or buy-to-let investment properties – usually dispense with this commission, while other real estate agents may have a few commission-free properties on their portfolio to make them more attractive to buyers. 

The land transfer tax though, is not optional.

Paid by the buyer to the federal state government of where the property is located, the applicable federal state government will likely send you a letter soon after you sign the agreement, asking you to pay the tax within a short time. Amounts range from 3.5 percent of the purchase price in Bavaria to 6 percent in Berlin and 6.5 percent in Brandenburg.

Finally, once you take possession of the new property, you will get a letter from your district, asking you to pay a fee to be added to the land register (Grundbuch), proving your right to the property. That fee typically runs several hundred euros.

READ ALSO: EXPLAINED: What you need to know about buying property in Germany

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