Towards the end of German housing (construction) subsidies?
More than ten years after the European Court of Justice ruled that the German Eigenheimzulage was in breach of European law, the EC also started questioning its successor, the Baukindergeld. ITEM had previously concluded that the Baukindergeld was in breach of European law. We now await the conclusion of the European Commission (EC), which had indicated that it would enable Germany to defend the current rules. If the EC does not agree with the German answer, this could once again mean the end of a German housing (construction) subsidy.
In July 2018, the German legislator retroactively adopted a law that grants the right to so-called Baukindergeld as of 1 January 2018. The Baukindergeld is a subsidy scheme intended to stimulate the home ownership of young families in Germany. The subsidies provided under the Baukindergeld amount to € 1,200 per child per year over a period of ten years, or expire earlier when the child reaches the age of 25. However, there are a number of conditions attached to the right to Baukindergeld. The most controversial condition excludes owners of dwellings located outside Germany from the right to Baukindergeld.
ITEM shows the way
This condition immediately attracted attention because of the negative consequences it has, especially for frontier workers. ITEM noticed this, which resulted in Dossier 4 of the 2018 Cross-border Impact Assessment. Frontier workers who live and own a dwelling in another Member State, but who also work in Germany and pay taxes there, are not entitled to Baukindergeld under the latter condition. They then fall between two stools because they are excluded in Germany from the Baukindergeld and are not entitled to the same benefits that facility home ownership in their Member State of residence as the vast majority of their income originates from Germany.
Under Article 7 of Regulation 492/2011, frontier workers enjoy the same social and tax advantages as national workers (i.e. workers residing and working in the same Member State). It is therefore irrelevant whether the Baukindergeld is regarded as a social or tax advantage, since in both cases frontier workers are entitled to equal treatment. Nevertheless, the Baukindergeld scheme makes a distinction based on residence. This creates a form of indirect discrimination contrary to the free movement of persons and Article 7 of Regulation 492/2011.
ITEM thus concluded that the Baukindergeld cannot be granted exclusively to owners of dwellings located in Germany. Frontier workers living outside Germany and working in Germany are also entitled to the Baukindergeld; a distinction based on residence is contrary to European rules on the free movement of persons. In addition to extending the right to the Baukindergeld to frontier workers, ITEM also recommended that future parliamentary debates take greater account of the effects on frontier regions and situations.
Will the EC follow suit?
However, ITEM was not alone in its criticism; questions were put to the EC in the European Parliament about the Baukindergeld. According to the EC, the Baukindergeld can be a family benefit under Regulation 883/2004 and/or an advantage under Regulation 492/2011. A family benefit cannot be made dependent on residence in the paying Member State. As regards a social or tax advantage, indirect discrimination is only allowed if it is objectively justified by the Member State. The EC will give Germany the opportunity to defend the current regime and to clarify the situation.
The EC is therefore not (yet) of the opinion that the Baukindergeld is in breach of European law. In the informal infringement procedure, Germany will for the time being be given the opportunity to convince the EC that the Baukindergeld is in conformity with European law. If it fails to do so, the EC can initiate the formal infringement procedure by means of a reasoned opinion, based on Article 258 TFEU. We now await Germany's response and the EC's action.
The Eigenheimzulage and Wohnungsbauprämie: more of the same
The Baukindergeld is not the first German housing (construction) subsidy that the EC is thoroughly investigating. The formal infringement procedure had already been initiated in connection with the Eigenheimzulage and the Wohnungsbauprämie. The Baukindergeld is the successor to the Eigenheimzulage, which was already abolished in 2005 after the European Parliament put questions to the EC about its compatibility with European law. Following a formal infringement procedure, the ECJ ruled that the Eigenheimzulage was in breach of European law. Afterwards, the frontier workers who had submitted an application received the Eigenheimzulage with retroactive effect.
It has not come this far with the Wohnungsbauprämie, a premium for savings for building or buying a dwelling a Bausparkasse. Frontier workers are also excluded from this premium, which is why the EC initiated the formal infringement procedure. The answer of the EC to questions put to it in the European Parliament shows that Germany intends to amend the rules on the Wohnungsbauprämie to bring them in line with European law. The EC thus concludes that it will not refer Germany to the ECJ, provided that the proposed changes prove sufficient.
Conclusion: is this the end?
If one looks at the predecessor of the Baukindergeld, the Eigenheimzulage, then the Baukindergeld does not seem to have a long life. There is a good chance that, if the ECJ ever has to deal with the Baukindergeld, the conclusion will be that frontier workers are also entitled to the Baukindergeld. However, the EC has not yet explicitly expressed its opposition to the current rules on the Baukindergeld, so the matter is still open for discussion.
Does this mean the end of the Baukindergeld? In any case, it does not have to go that fast. It is remarkable, however, that more than ten years after the Eigenheimzulage, a new German housing (construction) subsidy is being examined, and that at the same time the EC has initiated formal infringement proceedings with regard to the Wohnungsbauprämie. As early as 2018, ITEM already concluded that the current rules on the Baukindergeld are in breach of European law and that frontier workers are entitled to it. It is now up to Germany to prove the contrary and to convince the EC thereof.
If you are interested to learn more about this subject, a more extended version of this blog is available at the ITEM Cross-border Portal. There, you can also find an overview of the Dossiers of 2019 Cross-border Impact Assessment, which will be published in November.
 Arimont P., Family housing grants (‘Baukindergeld’) for first-time buyers of new or existing homes, Parliamentary questions, E-002147/2019, 3 July 2019. Available at: http://www.europarl.europa.eu/doceo/document/E-8-2019-002147_EN.html.
 Thyssen M. on behalf of the European Commission, Answer given by Ms Thyssen on behalf of the European Commission, Parliamentary questions, E-002147/2019, 29 August 2019. Available at: http://www.europarl.europa.eu/doceo/document/E-8-2019-002147-ASW_EN.html.
 European Commission, March infringement package: key decisions, MEMO-19-1472, 7 March 2019. Available at: https://europa.eu/rapid/press-release_MEMO-19-1472_en.htm.
 Arimont P., Discrimination of cross-border workers in connection with the housing premium (‘Wohnungsbauprämie’), Parliamentary questions, E-002601/2019, 2 September 2019. Available at: http://www.europarl.europa.eu/doceo/document/E-9-2019-002601_EN.html.
 Moscovici P. on behalf of the European Commission, Answer given by Mr Moscovici on behalf of the European Commission, Parliamentary questions, E-002601/2019, 21 October 2019. Available at: http://www.europarl.europa.eu/doceo/document/E-9-2019-002601-ASW_EN.html.