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Germany Eliminates Budget Deficit

by Ulrika Lomas, Tax-News.com, Brussels

06 December 2012


The German finance ministry has announced that it is forecasting a balanced state budget in 2012, two years earlier than previously anticipated.

On the basis of the latest medium-term forecast, the finance ministry states that it now expects a completely balanced budget this year. This is in contrast to the summer estimate, which forecast a total deficit of 0.5% of gross domestic product (GDP).

The German finance ministry has submitted an updated medium-term projection for the public budgets for the years 2012 to 2016 to the German Stability Council (Stabilitätsrat).

According to the finance ministry, the improvement compared with the summer estimate is due primarily to lower borrowing costs. Despite the additional financial burden associated with the long-term stabilization of the eurozone, namely the setting up of the European Stability Mechanism and capital flows into the European Investment Bank, together totaling over EUR10bn (USD13bn), the financing deficit stands at just EUR25bn this year, below the supplementary budget provision.

The improvement is also attributable to record revenue levels. In its November report, the finance ministry explained that the additional tax revenues are attributable predominantly to the ongoing positive performance of the labor market.

In October 2012, tax revenues stood at EUR37.7bn, up 2.5% compared with the same month last year (excluding local authority taxes). From January to October this year, cumulative tax revenues were up by 5.4% on the year. In September, the government recorded additional tax revenues of 4.2% compared with the same month in 2011.

The ministry revealed that revenues from wage taxes were up 6.7% in October 2012 over the same month last year and noted recorded increases in tobacco tax (+2%), motor vehicle tax (+11.5%), the country’s solidarity surcharge (+7.1%), and aviation tax (+20.6%).

The debt ratio is expected to fall to 81.5% of GDP in 2012, 2% lower than predicted in the summer. The debt ratio is expected to sink to around 73% of GDP in 2016. This figure compares with the European Union ceiling of 80% debt-to-GDP ratio.

TAGS: tax | fiscal policy | budget | Germany

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