Germany faces tightening tax revenue amid budget stalemate

Germany’s finance ministry said on Thursday that government tax revenue will be lower than expected in 2024, adding to the challenges facing Chancellor Olaf Scholz’s government.

Berlin will receive €30.8 billion ($33.6 billion) less than expected next year, the ministry said in a mid-year estimate.

German Finance Minister Christian Lindner said the drop in revenue was due to recent tax relief measures aimed at helping citizens cope with inflation and rising living costs.

Lindner defends tax relief, but calls for fiscal restraint

Lindner praised the government’s efforts to return money to individuals and businesses during difficult economic times.

At the same time, Lindner said that Germany has no tax collection problems: “We are a country with high taxes.”

The leader of the business-focused Free Democratic Party said Berlin must tighten its belt and resist further spending.

Chancellor Olaf Scholz’s pledge to increase Germany’s defense budget by 100 billion euros amid Russia’s war with Ukraine and the investments needed to tackle climate change have complicated Germany’s budget prospects.

“Instead of constantly inventing new spending programs, we should return to a stability- and supply-oriented fiscal policy,” Lindner said.

The finance minister is particularly interested in fulfilling the election promise to reinstate the so-called “Schuldenbremse” (debt brake), which is enshrined in the Basic Law or constitution of Germany.

The rule, which caps Germany’s debt-to-GDP ratio, was lifted in 2020 as the government took fiscal measures to boost the economy amid the COVID-19 pandemic.

tensions in the coalition

Lindner’s remarks calling for fiscal restraint could put him at odds with the other two parties in Germany’s ruling coalition, the center-left SPD and the Green environmentalists.

Both the SPD and the Greens fought cuts to social programs in the next budget. The Greens, in particular, have called for new investment to transition to a more climate-neutral economy.

The FDP also ruled out tax increases to fund new investment or government programs, due to the negative impact on the economy.

The three parties are struggling to come to terms on the issue, with Lindner saying an expected decision on the budget set for June 21 will have to be delayed.

Meanwhile, the conservative opposition Christian Democratic Union (CDU) criticized the government’s “lethargic” budget policy.

Christian Haase, a CDU member who sits on the Budget Committee in the Bundestag, also derided the SPD and the Greens as “utopians” who must be stopped.

wd/jcg (Reuters, AFP, dpa)

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