German total tax revenue from 2012 to 2016 will be 29.4 billion euros ($38.1 billion) more than estimated, allowing Chancellor Angela Merkel’s coalition to cut taxes and borrow less at the same time.
Tax revenue this year will total 596.5 billion euros, an increase of 4.5 billion euros over a November projection, the Finance Ministry said in an e-mailed statement, citing the conclusions of a three-day meeting of a government-appointed tax panel in Frankfurt an der Oder, east of Berlin on the border with Poland. Merkel’s federal government will reap 12.3 billion euros more than forecast over the five-year period.
“The tax estimate gives the clear signal that we don’t have a revenue problem,” Norbert Barthle, the parliamentary budget spokesman for Merkel’s Christian Democratic Union, said by telephone. He said it’s time to erase so-called cold progression, a loss in net income after taxes paid by workers that move into higher tax brackets after pay increases.
Growing tax revenue in Europe’s biggest economy contrasts with developments in the rest of the euro region. Germany’s economy will expand 0.6 percent this year, cutting the budget deficit to 0.8 percent of gross domestic product, while the euro region will post a deficit of 3.2 percent of GDP and shrink 0.3 percent, the International Monetary Fund said last month.
“The results of the tax estimate show that we’re on the right fiscal policy path of consolidation and providing growth impetus,” Finance Minister Wolfgang Schaeuble said in the statement. The “pleasing development” of revenue “supports the rapid reduction of structural new borrowing.”
The German government is obliged to reduce the federal deficit because of a constitutional “debt brake” that compels Schaeuble to cut the budget shortfall to 0.35 percent of GDP by 2016.
Otto Fricke, budget spokesman for Merkel’s Free Democratic Party coalition partner, said cold progression can be alleviated “without straying from the path of budget consolidation” and called on the opposition-controlled upper house of parliament to pass tax cuts worth around 12 billion euros at a session in Berlin tomorrow.
Merkel’s Cabinet on Dec. 7 agreed to reduce income tax by around 6 billion euros per year in 2013 and 2014, by increasing the tax-free allowance and lowering tax rates. The Social Democrats and the Green Party, which dominate the upper house, have said they’ll block the legislation because the government can’t afford the revenue loss.
“We in the coalition are firmly determined to use the extra revenue to reduce net new borrowing” this year and cut taxes from 2013, said Barthle. The federal government’s budget shortfall is expected to more than double from last year to 34.8 billion euros in 2012, boosted by two cash payments into the euro region’s permanent financial backstop.
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