German Government Facing EUR50 Billion Tax Shortfall

by Ulrika Lomas, Tax-News.com, Brussels

10 May 2005

Germany is facing a shortfall in tax revenues approaching EUR50 billion at federal, state and local level over the next three years after the government slashed its growth forecast and unemployment reached a post-war record in Europe's largest economy.

According to a report in the Berliner Zeitung newspaper on Monday, a source close to the panel of so-called economic 'wise men' confirmed that there will be a "dramatic" shortage of tax revenues in the coming years, although declining to speculate on the precise figure.

However, federal government tax receipts alone are estimated to be around EUR3 billion below forecast for 2005, a shortfall which is set to double in 2006.

Last month, the German government was forced to cut its growth forecast for 2005 to 1% from 1.6%. Its attempt to reduce the country's welfare bill has also been negated by rising unemployment which is now at a post-war record high.

In a bid to help kickstart the ailing economy, Chancellor Gerhard Schroeder's Cabinet have approved a cut in the basic rate of corporate tax to 19% from 25% which Finance Minister Hans Eichel wants to see signed into law before parliament's summer recess.

The Cabinet has also approved a measure reducing the inheritance tax burden on family-owned firms which exempts heirs from the levy provided they carry on running the business for a period of ten years.

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