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Blog: Corona, Debt, Finances ǀ Corona Effects

Economic effects of the corona crisis – what else can we expect?

The corona crisis not only hit companies and private individuals hard financially; In order to finance rescue packages and bridging aid, the German state had to take on more than 130 billion euros in new debt last year, and another 178 billion euros are planned for the current year 2021. The debt brake, which has limited the German state’s new debt to 0.35% of gross domestic product since 2009, has been temporarily suspended. Accordingly, it is also uncertain how the repayment of these loans will be financed.

There are many ideas, but only a few tangible ones

Saskia Esken, co-chair of the SPD, called for multimillionaires and billionaires to share in the costs of the corona crisis through a one-off property levy. However, it is questionable whether such a measure would bring the desired success, since large parts of the wealth of the super-rich are not freely available but only exist in the form of capital investments, for example in real estate or as equity in companies. Accordingly, it would be difficult to realize such taxes without placing an additional burden on the economy through falling prices for stocks and real estate.
An extension of the solidarity surcharge is also being discussed. The tax surcharge originally introduced in 1991 to finance German reunification should be abolished in 2021 according to the coalition agreement, but will now continue for particularly high-income households. Although the Bavarian Prime Minister Markus Söder (CDU), conversely, pleaded for a complete abolition of the “solos” to stimulate the economy, such ideas are also generally not very popular.

Compulsory mortgages provide hope of relief

Another potential solution that has already been discussed in the past in connection with the euro crisis is the introduction of forced mortgages. A compulsory mortgage is an additional levy on real estate that has to be paid over a limited period of time, i.e. the owner of the property pays it off like he would with a conventional mortgage. This measure would have several advantages for the state: On the one hand, every property in Germany is recorded in the land register; so it is not possible to keep real estate secret from the state. Second, a property cannot move to tax havens. Last but not least, due to the high value of real estate, it would also be lucrative for the state to levy taxes on it.

Historically, such taxes are also not without precedent. For example, the Weimar Republic introduced the so-called house interest tax in 1924 to finance the costs of publicly subsidized housing construction after the First World War. After the Second World War, there were similar measures under the law on equalization of burdens, which covered all privately owned land – including owner-occupied properties – with a compulsory mortgage of 50% of the value, which had to be repaid in 120 quarterly payments over the next 30 years.
Even after German reunification, there were occasional plans to finance “Reconstruction East” with compulsory loans, but these were quickly abandoned due to concerns about their constitutional conformity.

Is There Coming A Return Of Forced Mortgages?

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The concern about future forced mortgages is not new either: In July 2012, the current AfD parliamentary group vice-president Beatrix von Storch claimed in an appeal for donations by the association “Zivile Koalition” from an unspecified source in the Ministry of Finance that he had concrete plans for forced loans Overcoming the euro crisis had been examined and prepared. In fact, such a proposal was submitted to the Ministry of Finance by the German Institute for Economic Research; However, the then Finance Minister Wolfgang Schäuble (CDU) rejected this on the grounds that Germany was “very well positioned”, both in terms of debt and tax revenue.
A few years later, the French Prime Minister Emmanuel Macron from the think tank “Francestrategy” was presented with a similar approach in an article on national debt. Although the think tank experts themselves admitted that this was politically unsustainable, which was later confirmed by the French government, rumors about secretly planned laws and state recycling agencies that, starting with France, spread in all EU countries again shortly afterwards to enforce such forced mortgages.
Such rumors are, of course, also found food for conspiracy theorists as well as self-proclaimed “enlighteners” and “lateral thinkers” who hope that the spread of these will stir up fears in the population and thus become socially acceptable on other topics. Tens of thousands of video views warning of forced mortgages or the impending “loss of land rights” show just how dangerous this strategy has become.

Ultimately, it depends on the further course of the Corona crisis whether there will ultimately be compulsory mortgages in Germany. Even if such solutions have already been used several times in the past, they have met with strong resistance in recent years, including from politicians whenever they have been proposed. What is certain is that forced mortgages will always remain the state’s ultima ratio, which can only be used if all other rescue attempts have failed.

Swell:

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