Germany’s odd “Reunification Tax”

I’m often asked by my guests about the reunification process: Is it already a thing of the past or can it still be felt?

While in most aspects of everyday life this process is no longer an issue one often becomes aware of, there are exceptions, specifically in financial terms. For example, the government’s calculation of your future retirement pension isn’t based only on your (mandatory) payments to social security, but also on where within Germany (or Berlin) those payments are made. For employees, it’s the address of their employer. For self-employed, it’s their own address. In both cases the government applies a different formula that benefits the former east, in order to compensate for it’s lower average wage. So for every Euro you pay in the former East, you basically get more than in the former West. In Berlin, because of the way it was divided, it’s sometimes a question of whether you live on the one side or the other side of the same street. Moving from the side that used to be in the West to the one that used to be in the East can actually increase your future government pension.

Another example is a new tax that was born in 1991, shortly after Germany’s reunification in 1990. It’s called “Solidarity Surcharge” and it affects both West and East in the same way. Originally it was conceived as a temporary measure to support additional expenditures of that time. And indeed it ended in 1992. But in 1995, it came back and ever since it just sticks. It amounts to 5.5 percent – yet not 5.5% of your income, but of whatever your income or withholding taxes amount to. So for example, if these taxes amount to 10,000 Euro at the end of the year, you’re asked to show your solidarity with the former East by paying another 550 Euro on top of that.

That’s the same all over Germany and is a nice reminder that its reunification, at least according to the government, isn’t quite finished. Supposedly, this extra tax is necessary because the former East still requires large investments. But in fact, these earnings are used for whatever the government wants, regardless of Germany’s reunification. They simply disappear in the general budget. That’s why some people claim it’s actually unconstitutional. Yet Germany’s constitutional court elegantly decided not to decide (oh, it also didn’t give any reasons for that non-decision).

Even though the government’s story doesn’t have anything to do with reality, in the minds of the people it is still perceived as linked to reunification and to supporting the former East. According to surveys, in the former West most taxpayers oppose the “Solidarity Surcharge”, while in the former East there’s a clear majority in favor of keeping it.

Last but not least, here’s another example for Germany’s still unfinished reunification – and this too is something that we Berliners usually don’t notice in our everyday life, even though it’s right there: The difference between West-Berlin’s mercury-based street lamps and East-Berlin’s sodium-based lamps. They create different kinds of light that’s rather “cold” in the West and “warm” in the East. There’s a plan to unify the system but for the time being, the former division is still clearly visible – at least from space:

Berlin at night from space
(Chris Hadfield / NASA)