"More justice"

National Bank experts in favor of wealth tax

The experts at the Austrian National Bank advocate the introduction of a wealth and inheritance tax.

(Bild: APA/Hans Klaus Techt)

Income and wealth are very unequally distributed in Austria. Almost only people in the top half of the net wealth distribution own their own home, while direct business ownership and income from property rentals are concentrated in the top decile. As a countermeasure, experts from the Oesterreichische Nationalbank (OeNB) call for a wealth tax, an inheritance tax and a tax on land rents in the latest social report from the Ministry of Social Affairs.

The wealthy would benefit from the tax structure and subsidies as well as support in crises and basic property protection, but would also have better access to political decision-makers, for example. "They can influence the legal framework in their favor much more easily than the poor and people in the middle of society," say study authors Pirmin Fessler and Martin Schürz. However, too much power through "excess wealth" is detrimental to democracy.

"Promoting social justice"
Fessler and Schürz therefore advocate the introduction of taxes that promote social equality, contribute to combating climate change and have the potential to significantly reduce taxes on labor at the same time. They see empirical evidence for their demands in the OeNB study "Household Finance and Consumption Survey (HFCS).

(Bild: APA/HANS KLAUS TECHT)

Specifically, they are calling for the gradual introduction of a tax on land rent, once promoted by the liberal economist Milton Friedman as the "least bad tax". The idea behind this: Public goods such as infrastructure (a new subway station nearby, for example) increase the value of land without landowners having paid for it directly - an ongoing "invisible redistribution from the propertyless to those who have land". This fuels social inequality, as landowners can sell access to goods and services and keep the corresponding income. This money, in turn, is not available to finance public goods and services. In addition, the "privatized land rent" also leads to high land consumption due to inefficient use of the land, the study states.

Property tax too low according to OeNB
Austria has had a property tax since the 1950s. However, because the standard values used to value land are far too low, the study says that this only generates comparatively little revenue. For a 100-square-metre apartment in the center of Vienna with a value of hundreds of thousands of euros, for example, a property tax of only 50 euros per year is due, and 40 euros for a detached house in the countryside with 1,500 square meters of land, the authors calculate. Land used for agriculture or forestry costs a few euros per hectare. Although a land transfer tax of 3.5 percent is payable on the purchase of land, this is often circumvented by company structures for large land purchases.

According to the authors of the study, taxing the land rent (only on the value of the land, not the buildings on it) would mean that not only the land owners but also the general public would get something back from the increase in value through public infrastructure. In addition, this would make land cheaper, which would enable more people to acquire property, the authors promote the model - even if the valuation of land is relatively complex depending on the location.

"Combating excessive wealth concentration"
According to the authors, the reintroduction of the inheritance and gift tax, which was abolished in 2008, should in turn strengthen social mobility and equal opportunities "by taxing unearned, unearned income from inheritances and thus combating the excessive concentration of wealth". Accordingly, they also reject a tax exemption for the inheritance of companies, as this would mean giving preferential tax treatment to the richest. According to the authors, a progressively structured tax, with very low taxes for small inheritances and high taxes for large ones, would generate several billion euros a year for the state, which could be used specifically for educational institutions, care or anti-poverty measures.

A tax on net wealth should in turn counteract excessive concentrations of wealth and power and ensure greater transparency and fairness in terms of wealth. Austria already had a wealth tax from 1955 to 1993. However, due to the anonymity of bank accounts at the time and the valuation of real estate based on outdated unit values, it only covered part of the wealth. Including exemptions and low tax rates, the tax therefore only accounted for around one percent of tax revenue at the time. For their model, Fessler and Schürz are now proposing a high tax-free amount of 50 million euros in order to "limit the tax to extremely wealthy people and thus combat the democracy-destroying effect of billions in wealth". Well designed, the tax could also bring more transparency to the wealth situation and make tax evasion and tax avoidance more difficult.