Bloomberg News

Germany Has Ample Revenue to Fund Planned Tax Cut, Official Says

October 31, 2011

Oct. 31 (Bloomberg) -- Germany will generate enough revenue to fund tax cuts from 2013 that were announced by Finance Minister Wolfgang Schaeuble earlier this month, a government official said in Berlin today.

An unpublished forecast by the Finance Ministry shows that tax revenue in coming years will be higher than expected in May, said the official, speaking on condition of anonymity. The ministry’s prediction will be part of a panel’s joint forecast to be published Nov. 4, the official said.

Germany plans to reduce income tax by as much as 7 billion euros ($9.8 billion) per year from 2013, Schaeuble said Oct. 20 at the publication of the government’s economic outlook. The cuts aim to give some of the income tax gains that result from higher wages back to workers, Schaeuble said then.

Growth in German tax revenue accelerated in September, led by tax collection at the federal level, the Finance Ministry said Oct. 21, cautioning that economic growth will slow. The panel of tax forecasters will base its outlook on the government’s official growth forecast, which predicts the economy will expand 1 percent next year.

The government is confident that the panel meeting in the eastern city of Halle this week will present a joint forecast that creates scope for the removal of the so-called cold progression without forcing municipalities and the 16 states to boost borrowing, said the official. Cold progression means employees can end up worse off when winning a pay raise because it forces them into a higher tax bracket.

The panel in May estimated total tax revenue of 247.2 billion euros next year, 255.4 billion euros in 2013, 265 billion euros in 2014 and 274.3 billion euros in 2015. The panel estimated revenue surpluses compared with an earlier prediction of 5.4 billion euros in 2012, 4.6 billion euros in 2013, 5.6 billion euros in 2014 and 6.6 billion euros in 2015.

There is no leeway for any public spending that goes beyond the current plan and there are risks that planned revenue from items such as a financial transaction tax won’t materialize, the official said.

While the government doesn’t plan automatic tax adjustments, it will review the tax burden every two years, Schaeuble said Oct. 20.

--Editors: Leon Mangasarian, Alan Crawford.

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net


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