Germany's highest court begins hearing on solidarity tax

BERLIN (Reuters) - Germany's Constitutional Court began hearing a case on Tuesday on whether German taxpayers must continue to pay a "solidarity tax" introduced after reunification of the country nearly three decades ago to support poorer eastern states.

Although the solidarity pact, a package of measures to help finance the impact of reunification, ended in 2019, taxpayers continued to be subject to the levy that adds 5.5% to income taxes.

The six plaintiffs that brought the case in 2020 - all members of the liberal Free Democrats (FDP) - say this violates the constitution as the eastern states no longer have special financial requirements.

FDP parliamentary group leader Christian Duerr, one of the plaintiffs, said the levy had become a "pure economic tax" that cost the economy 7 billion euros ($7.43 billion) per year.

According to the finance ministry, the state collected 12 billion euros in solidarity tax last year. If the Constitutional Court decides to scrap the levy, all proceeds from the tax since 2019 would have to be paid back.

A three-party coalition, whicht governed Germany since 2021, collapsed last week, paving the way for snap elections early next year. An additional hole in the nation's budget would create further uncertainty over government spending.

Another aspect of the case pertains to a decision by the government of former chancellor Angela Merkel that only the wealthiest taxpayers should pay the levy. About 90% of taxpayers are exempted, which the plaintiffs consider to be a violation of the principle of equal treatment.

The court is not expected to make a decision in the case for several months.

($1 = 0.9415 euros)

(Reporting by Ursula Knapp, Writing by Friederike Heine; editing by Barbara Lewis)