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The German government expects tax revenues to be €58.2bn lower in the five years to 2028 than it previously forecast, expanding the hole in next year’s budget and increasing the strains on Chancellor Olaf Scholz’s fragile coalition.
The new forecast for 2024-28 reflects recent downgrades to Germany’s economic prospects, with officials now predicting a recession this year, marking the first time the country will have experienced a contraction in two consecutive years since the early 2000s.
Government officials expect tax revenue for next year to be €12.8bn lower than they previously forecast in May, and €8.7bn lower this year, amid significant declines in income from payroll, corporate and sales taxes.
On Thursday, finance minister Christian Lindner said the figures meant “no more scope for income redistribution” remained, adding: “New spending wishes cannot be fulfilled: on the contrary, we have to consolidate even more.”
The estimates come at a sensitive time for the government which has presented a draft 2025 budget to parliament with a €2.5bn financial hole that ministers and MPs do not know how to fill.
Lindner, who was in Washington for the annual meetings of the IMF and World Bank, acknowledged that the new tax figures had enlarged the funding gap but he declined to elaborate how big it had grown, describing it simply as “closer to €10bn than €1bn”.
Germany’s economic downturn and the worsening fiscal situation have intensified divisions within government, a fraying coalition of social democrats, greens and liberals.
Scholz’s Social Democratic party and the Greens would like to take on more debt to provide more money for investment. But Lindner, leader of the fiscally hawkish and liberal Free Democrats, has insisted Germany must abide by its “debt brake”, a strict cap on deficits and new borrowing that is anchored in the constitution.
He said the figures meant Germany had a more urgent need to reform its welfare system.
“We have to remove the inefficiencies we have,” he said. “Our country can’t deploy its financial resources for freeloaders who don’t fulfil their own potential but just want to profit from other people’s high performance.”
The gloomy economic news came in the same week that US tech company Wolfspeed shelved plans to build a chip plant in western Germany, a move that came just a month after Intel also delayed a €30bn project in the eastern city of Magdeburg.
Ironically, Intel’s decision to put off its plans will provide some relief for the government. The project was to have received a total of €9.9bn in government subsidies: some €7bn of that will now flow back into the budget this year and next, Lindner said.
But he warned “this money is not available for other projects” and would be used for normal budgetary spending, potentially setting up a clash with cabinet colleagues such as economy minister Robert Habeck who would like to repurpose the Intel grants for other climate and technology initiatives.
The BDI, Germany’s main business organisation, urged the government to counter the drop in tax revenues with “programmes to stimulate growth”.
It said ministers should reduce the tax burden on companies and reduce bureaucracy “to strengthen companies’ liquidity” and ensure a growing tax take.