German Government Confirms Massive Tax Shortfall

by Ulrika Lomas, Tax-News.com, Brussels

16 May 2005

Against a backdrop of weakening economic growth and growing unemployment, the German government has confirmed a bleak outlook for tax revenues for the period through to 2008, which are expected to fall way short of targets.

Following a meeting of a panel of tax experts last week, Gerhard Schroeder's government now expects tax receipts to fall EUR67 billion ($85.6 billion) short of targets over the next three years, the finance ministry confirmed in a statement.

Federal tax income alone will fall EUR10 billion below previous estimates next year.

Given the wide discrepancy, the opposition has called upon the Finance Minister Han Eichel to draft a supplementary budget. However, Eichel rejected the need for new budget plans, saying that such an argument "does not currently make sense."

However, Eichel conceded in a Berlin press conference last week that in the light of the recent figures, it will be "exceptionally difficult" to draw up next year's budget, which is due to be presented on June 29.

Should Eichel be forced to draft a supplementary budget, it will be the fourth consecutive year that the government has been forced to change its budget plans owing to the country's weak economic performance.

Nonetheless, the finance minister was not prepared to accept that Germany's fiscal mess is entirely of the government's own making and has repeatedly blamed opposition conservatives for blocking tax legislation that he says would have brought in an additional EUR17 billion and lowered the budget deficit below European Union limits.

Germany, the European Union's largest economy, is forecast by the European Commission to be the slowest-growing economically in the 25-nation EU this year.

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