Published : 5 months ago, on 16/05/2024

German experts cut their tax revenue forecasts for 2024-28 by 1.5%

By Maria Martinez

BERLIN (Reuters) -Germany’s council of tax experts cut their forecast for total tax revenue over the next five years by 1.5% on Thursday, which could add another layer of complexity to already challenging negotiations for next year’s budget.

The council now expects 80.7 billion euros ($87.7 billion) less in total tax revenue in the 2024-2028 period compared with its October forecast.

For the federal government alone, the council expects 41.6 billion euros less in tax revenues in the five-year period, according to its updated estimates.

For the 2025 budget, some ministries are pushing for higher spending, while the finance ministry insists on the need for fiscal consolidation.

“These forecasts are a reality check for the federal budget,” Finance Minister Christian Lindner said on Thursday. “We need an economic turnaround instead of new debt.”

While the various ministries’ spending wishes for 2025 already exceed Lindner’s specifications by around 20 billion euros, the federal government is now expected to have 11 billion euros less in tax revenues next year than forecast in October.

“We have to prepare the budget with the means that the taxpayers give us,” Lindner said at the press conference presenting the new forecasts. “The result of the tax estimate therefore shatters the illusion of all those who may have assumed that money simply falls from the sky.”

For the minister, the forecasts were no surprise, as the economy remains weak after shrinking 0.2% last year – the weakest performance of the big euro zone economies – as high energy costs, lackluster global orders and record high interest rates took their toll.

The government forecasts only 0.3% economic growth this year, which is more optimistic than the 0.2% forecast of the German Council of Economic Experts.

“Even in the medium term, our country’s growth prospects are modest at best,” Lindner said.

Tax revenue for the federal government this year is seen coming in 5.6 billion euros lower than in the forecast published in October. It is now expected to be 5.4 billion euros lower for the federal states and around 100 million euros lower for municipalities.

“The reduced revenue expectation alone is not a cause for concern at this point in time, but there are risks with regard to expenditures that I am currently looking at,” Lindner said.

Due to the high spending requests of the ministries for the 2025 budget, there will be further political discussions in the coalition government of the Social Democrats (SPD), Greens and pro-business Free Democrats (FDP).

Lindner expects budget negotiations to be challenging and intense. “We are dealing with a gap in the low double-digit billion euro range that needs to be closed.”

Despite complicated negotiations, Lindner said he still expects the cabinet will approve the first draft of the budget on July 3, before the summer break.

The Bundestag lower house of parliament will then discuss the draft from September and pass it by the end of November 2024.

($1 = 0.9205 euros)

(Reporting by Maria Martinez, editing by Kirsti Knolle, Hugh Lawson and Michael Erman)