Czech investment apartment tax: what it means for renters

Czech Finance Minister Alena Schillerová has not ruled out a tax on investment property, but experts warn that such a tax would push rents up and hit tenants first of all. The Finance Ministry itself says the ruling coalition is not currently preparing any proposal.

The growing state budget deficit is forcing even politicians who once refused to discuss tax increases to look for new sources of money. Members of the governing ANO movement have begun talking about taxing investment apartments, which could help plug the budget gap and ease the housing crisis at the same time. “There are many people who own several properties. Some own as many as three hundred flats,” Schillerová said on Czech television. According to her, with the European Commission and the International Monetary Fund pressing Czechia, the idea is worth considering, and the ministry is now analysing various forms of such a tax.

What other countries do

Foreign examples could offer a hint. According to Zdeněk Soudný, vice-president of the Union of Entrepreneurs in Construction and secretary general of the Association of Developers, France levies a special tax on certain flats that have stood empty for a long time. Vancouver in Canada has a vacancy tax, and in some parts of the United Kingdom local authorities can raise the tax burden on a “second home” or a long-uninhabited property.

Soudný believes foreign experience is useful as a source of ideas, but not as a manual for mechanically introducing new taxes: a single tax cannot solve the housing crisis. Effectiveness, he says, depends on local conditions, the set of exemptions, enforceability and whether new apartments are being built. Definitions matter just as much: a flat its owner has long rented out must be distinguished from an empty one that serves merely as a way to store capital. Rented flats expand the supply on the rental market, so an additional tax, Soudný warned, “may have the exact opposite effect to the one expected.”

Who will end up paying

Jakub Vysocký, president of the Rental Housing Association, also does not believe that a tax alone will automatically make housing more affordable. In his words, if owners’ costs of letting go up, some will pass them on in the rent, and some will take the flat off the rental market altogether.

Štěpán Křeček, chief economist at BH Securities and a former adviser to ex-prime minister Petr Fiala (ODS), expects the same outcome. The owners of dozens of flats he has spoken to all told him that, if the tax is introduced, they would raise their tenants’ rent the very next day. That is why, Křeček believes, the most vulnerable will suffer most: tenants who cannot protect themselves. In his estimate, the tax would not help the budget either: it would bring in only a few billion crowns, while the deficit would still stand at hundreds of billions.

A “shot” aimed at voters?

Beniamin Činčila, a member of the Chamber of Deputies’ budget committee and first deputy chairman of KDU-ČSL, is not opposed to discussing tax increases in general. But a lot, he says, depends on the exact wording and on taking regional differences into account: the tax should be built on the principle of farmland quality ratings, because a small flat in a village in the Vysočina region and a flat in Prague’s Bubeneč are taxed the same although they are worth very different amounts. Such changes must outlast more than one electoral term, so they should be preceded by a discussion among all political forces. With a prior agreement, he would be ready to vote “yes” even as an opposition deputy.

He does not like the minister’s approach: each time she “fires off” something and, together with the prime minister, checks whether voters will “swallow” it, although the country needs a comprehensive tax reform. The Finance Ministry’s official reply also points to a shot in the dark: according to the ministry’s spokeswoman Gabriela Krušinová, no project to tax investment apartments is currently being prepared at the level of the ruling coalition.

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Around Prague, based on reporting by denik.cz