Germany Expects Stronger Tax Revenue in Boon for Next Leader
Germany Expects Stronger Tax Revenue in Boon for Next Leader
(Bloomberg) -- Germany is poised to reap significantly more tax revenue than expected in a surprise windfall for chancellor-in-waiting Olaf Scholz and his prospective ruling coalition.
Tax income will be about 35 billion euros ($40 billion) higher on average through 2025 than forecast in May, according to the government’s latest estimates published Thursday in Berlin.
That amounts to total extra revenue for federal, regional and local governments of around 180 billion euros, according to the finance ministry. Annual federal income will be about 13 billion euros more than expected.
“Germany is in very good financial shape despite the coronavirus crisis,” Scholz, the current finance minister, said at a news conference.
“That’s good for the next government, it’s empowered to take action,” he added. “It’s now about governing responsibly and intelligently so that our nation can tackle the challenges of our time.”
Social Democrat Scholz is negotiating with the Greens and the Free Democrats to form Germany’s next government and is aiming to be sworn in to replace Angela Merkel in early December.
The three parties are seeking to finance an ambitious agenda that addresses climate change and develops Germany’s digital infrastructure, while adhering to constitutional borrowing restrictions.
The Greens have proposed annual spending of 50 billion euros over 10 years to help tackle harmful emissions, while Scholz’s SPD has targeted similar amounts. The FDP is more inclined to keep spending in check, while seeking to foster private investment.
Europe’s biggest economy is continuing its gradual recovery from the impact of the coronavirus, helping underpin the revival in tax income.
Scholz said that Germany’s debt ratio will decline more quickly in coming years, falling to about 65% of gross domestic product or possibly less by 2025.
The government’s panel of economic advisers said this week that they expect GDP to reach its pre-pandemic level by the first quarter of next year, even as supply-side bottlenecks and restrictions to check the spread of Covid-19 continue to hold back growth. They predicted that the economy will grow by 2.7% this year, before expansion accelerates to 4.6% in 2022.
“The return of extensive measures to stop the spread of the coronavirus or persistent supply and capacity bottlenecks could take a heavier toll on the recovery than assumed in the forecast,” the advisers warned.
“If the bottlenecks are eliminated more quickly, however, there are opportunities for pent-up consumer and investment demand to produce a more rapid upturn,” they added.
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