Despite the economic downturn, tax assessors are forecasting minimal additional revenue. But this will hardly help the budget holders in the Bundestag: there is hardly anything to distribute.
The financial scope of the federal, state and local governments remains tight. According to a forecast by tax estimators, the state will only collect around 1.9 billion euros more in taxes next year than expected in the spring. This hardly means any relief for Finance Minister Christian Lindner’s budget. Overall, tax estimators expect revenue of 964.1 billion euros for 2024.
“There is no new scope for distribution,” emphasized Lindner on Thursday when presenting the figures in Berlin. More than ever, it’s about setting priorities wisely. “Now is the time to make bold decisions when planning spending,” said Lindner.
Germany in decline
The estimates’ figures reflect the economic downturn. The German Chamber of Commerce and Industry analyzed on Thursday that the times when things automatically picked up again after economic downturns are over. In fact, Germany is emerging from the crisis more slowly than expected. The main reasons still have to do with the Russian war in Ukraine: the aftermath of the energy price crisis, high interest rates and a weak global economy. There is also uncertainty about the latest geopolitical conflict in the Gaza Strip and Israel.
The state can benefit from high inflation. The higher the prices, the more taxes the federal, state and local governments collect. According to the forecast, tax revenue will rise above the one trillion euro threshold for the first time in 2025.
For the entire estimation period up to 2027, the estimators predict 23.3 billion euros more revenue than in the spring. This is a far cry from the high growth rates of past years, when budget politicians were still able to distribute billions on a regular basis.
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Hardly any relief for the federal budget
The tax estimators’ forecast is an important basis for the final discussions on the 2024 federal budget. It determines whether further savings decisions need to be made in the Bundestag – or whether there is scope for additional spending. According to tax estimates, the federal government and the Bundestag can now plan at least 3.8 billion more than in the spring. This means that the federal government can benefit significantly more than states and municipalities. The fact that the state as a whole only receives 1.9 billion euros more is because the federal government’s transfers to the EU are lower than expected.
There have been plenty of requests for additional spending recently, especially for relief for citizens and companies due to inflation and expensive energy. At issue is, for example, whether the VAT on food in restaurants will remain permanently reduced. The Bundestag has to decide that, Lindner has repeatedly emphasized. The same applies to the question of whether new funds will be planned for sea rescue in the Mediterranean. This is very controversial in the federal government because some fear that they will indirectly support the smugglers with German tax money.
Lindner is pursuing tough austerity measures
All ministers must appear in the Budget Committee in November and defend their budgets. This will probably be painful for many, because Lindner has demanded tough austerity measures from them. The debt brake anchored in the Basic Law must be adhered to again; tax increases are out of the question for the FDP minister. This limits the scope for spending if no surprise tax gifts come in. The federal government wants to spend 445.7 billion euros in the coming year.
Here, however, the weak economy could play into its hands for once. Because it increases the scope for additional debt. This is made possible by a regulation of the debt brake: Depending on the economic situation, it allows the federal government to borrow a small amount – the worse the economy is doing, the more. In the spring, Lindner was still planning on having 16.6 billion euros in debt, but now it is likely to be a few billion more.