Tax estimate: 179 billion euros more: the state can expect a strong tax increase by 2025

Olaf Scholz (SPD), Christian Dürr and Christian Lindner (both FPD) in the Bundestag

The traffic light coalition can distribute more money thanks to the increasing tax revenue.

(Photo: dpa)

Berlin Good news for the three traffic light parties SPD, Greens and FDP: The future federal government can count on substantial additional tax revenues. This means that the possible coalition – contrary to what was feared – has at least a small amount of financial leeway.

According to the new tax estimate, the federal, state and local governments will earn 179 billion euros more from 2021 to 2025 inclusive than the forecast in May. The federal government accounts for 71.7 billion euros in additional income, which is an average of 14.3 billion euros per year.

The main reason for the tax plus is the healthy economy. The federal government predicts growth of 4.1 percent for 2022. The upswing will allow tax revenues to bubble up again in the next few years after the severe slump in the corona crisis.

For this year, the federal government recently lowered its growth forecast from 3.5 to just 2.6 percent. But despite the gloomy economic outlook, tax revenues have also been going well this year. This year alone, the state can expect additional income of 38.5 billion euros, which is even slightly more than the average for the next few years.

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Corona crisis has left deep marks

For the federal government, this means that this year it will have to incur significantly fewer debts than planned. Contrary to what was feared, the traffic light coalition will now have some leeway to finance joint coalition projects.

After an internal cash fall by the Federal Ministry of Finance, which already took the new tax estimate into account to a large extent, the future federal government has a distribution margin of ten to 15 billion euros per year, according to Handelsblatt information.

The new tax estimate is also encouraging for another reason: Apparently, government revenues are recovering relatively quickly from the historically strong slump during the pandemic.

However, the crisis is still leaving deep marks on the federal budget in the medium term. Despite the strong upward revision, revenues are still well below the predictions from the pre-Corona period.

In November 2019, shortly before the outbreak of the corona virus, the tax assessment working group expected total government tax revenues of EUR 845 billion for the year 2021. According to the new estimate, it will be 812 billion euros – still over 30 billion less. This gap will at least halve in the next few years. In 2024, the state will only earn 15 billion euros less than assumed before the corona pandemic.

Scholz should feel confirmed by this. He had always said that Germany could outgrow the crisis – and with the associated higher tax revenues, close the budget holes that had been created by the costly measures to combat the crisis.

A lot of work for the chief negotiators

But even with the new tax increase, both cannot be achieved: close budget gaps and fulfill all the wishes of the traffic light coalition. In the “Budget” working group, the SPD, Greens and FDP therefore wrestled hard with each other over how billions can be raised without violating the constitutional debt brake and which projects of the three parties should enjoy priority.

As you can hear, the negotiators did not come to a clear result. The working group is said to have not agreed on specific figures for how much money is available per year. Rather, they agreed on an approximate financial framework within which the coalition could move. “We have given some contentious points to the main negotiating group,” says one negotiator. This now has to solve the open questions, “that’s what the bosses are there for”.

From Monday, the chief negotiators of the SPD, FDP and the Greens want to discuss the results of the 22 working groups and form a coalition agreement from them. One of the main tasks will be to set the budget and decide which projects will be funded – and which will not.

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