Germany Projects Higher Tax Revenue Despite Virus Struggles
Germany Projects Higher Tax Revenue Despite Virus Struggles
(Bloomberg) -- Germany raised its forecasts for tax revenue this year and next as the government’s efforts to contain the economic fallout from the coronavirus pandemic show signs of working.
Chancellor Angela Merkel’s government on Thursday raised its tax income estimate for 2020 by 10.6 billion euros ($12.5 billion) from its September projection. The figure for next year rose 3.3 billion euros to a total of 776.2 billion euros.
“We are able to keep the economic impact of the second wave limited,” Finance Minister Olaf Scholz said in Berlin. “We can see better times.”
Despite higher-than-expected revenue, Germany will have to borrow more than planned in 2021 as spending rises amid the country’s struggles to control the outbreak.
The government intends to take on new debt in excess of the currently-planned 96.2 billion euros, according to people familiar with the deliberations who requested not to be identified. To deal with the fallout from the pandemic, it already projected a nominal deficit of 217.8 billion euros this year.
With restaurants, bars and gyms closed again, and non-essential travel banned this month, Europe’s largest economy is likely to have come to a standstill, the Council of Economic Advisers said Wednesday. It projected growth for next year of 3.7%, compared with the government’s projection of 4.4%.
To cushion the blow, the government is boosting spending by extending job-support programs and financial aid to companies struggling with the partial shutdown. For 2021, the government is preparing a further extension of its business-grant scheme and expanded access to social assistance, people familiar with the discussions said.
Germany will need to borrow “substantially” next year, Scholz said, declining to put a figure on the extra spending that would be needed. He confirmed plans to extend pandemic-related aid until the summer of 2021.
The measures announced in the run-up to the November shutdown will cost “a few billion” euros more than the originally estimated 10 billion euros, he added.
While rapid increases in new cases have slowed, levels are still too high, Merkel said on Thursday, suggesting virus restrictions may have to be extended into December. Germany is looking to reduce cases to 50 per 100,000 people over seven days from 138 currently.
“We all need to be completely reasonable now,” she said during an online town hall meeting with apprentices. “We’re doing everything in order to make progress in December, but we need to get through the tough winter months.”
©2020 Bloomberg L.P.