Germany’s Tax Revenue Projections Fall

May 7, 2010 Taxation in Germany

Angela MerkelThe German Government has publicized its new tax revenue projections, showing a EUR 1.2 billion drop in collections. The new figures throw further doubts on feasibility of Chancellor Angela Merkel’s promised cuts to personal income taxes.

On May 6th the Finance Ministry of Germany released new projections for the country’s current year tax revenues, along with early tax revenue estimates for the next three year. In 2010 the German Government expects to collect approximately EUR 510.3 billion, nearly EUR 1.2 billion below previous estimates. Tax revenues for 2011 are slated to be EUR 515 billion, a vast EUR 11.7 billion below projections. The Ministry also stated that collections in 2012 are expected to fall by nearly EUR 12 billion and EUR 14 billion in 2013. Cumulatively, Germany is currently facing a EUR 39 billion shortfall in tax collections over four years.

According to the European Commission, Germany’s budget deficit will reach 5 percent of GDP in 2010. Alternatively, estimates by the German Government place the figure at approximately 6 percent. On May 5th the European Commission also revealed that it has forecast Germany’s economic growth to remain at 1.2 percent in 2010. The Commission’s estimate for 2011’s growth levels was cut by 0.1 percent to 1.6 percent.

The diminished projections have brought into question the likelihood of the German Government’s promised cuts to personal taxation levels. Chancellor Angela Merkel and Wolfgang Schaeuble, Finance Minister of Germany, have already given indications that no tax cuts can be expected before 2012 due to the tightening monetary position. Although, the German Free Democrat Party is claiming that the lowered growth forecasts justify cuts to taxation levels. Elaborating on the view Otto Fricke, Free Democrat Party lawmaker, said, “In view of low growth rates, we must provide stimuli for growth by cutting taxes in order to strengthen domestic demand.”

Photo by Sebastian Niedlich (Grabthar)