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Business

German state headed for tax bonanza

German public treasurers can expect billions of euros more in tax income than previously thought, a government working group has found, as accelerating growth means state coffers filling faster over the next few years.

According to a new estimate released Thursday by the German government's working group on taxes, state and regional administrations as well as municipalities will earn a total of 280.3 billion euros ($316 billion) in taxes this year - 6.3 billion euros more than forecast by the panel in its previous estimate in November.

Next year, German tax income was expected to be 7.7 billion euros higher, followed by an increase to 8.4 billion euros in 2017, the tax experts calculated. Until 2019, the total sum of higher-than-expected state income from taxes would swell to about 38 billion euros, they said.

"The tax estimate reflects the positive development of the German economy," the Finance Ministry in Berlin said in a statement.

Germany, which is Europe's biggest economy, fared much better than its eurozone partners in the recent economic downturn, and is currently experiencing an economic upswing fuelled by low interest rates and fiscal stimulus from the European Central Bank (ECB). In addition, unemployment is very low, with higher consumer spending boosting growth further.

Tax cut in the offing?

The welcome news from the tax experts is likely to lead to lower income taxes for German middle-income earners.

German Finance Minister Wolfgang Schäuble announced on Thursday that his ministry was exploring changes to the tax system that would leave more money in their pockets.

Schäuble said he was planning to tackle so-called "cold progression" - an injustice in the system arising when a pay hike places a person in a higher tax bracket, thus eating up parts or the entire raise.

The measure would cost the German state about 1.5 billion euros per year. Schäuble said a reform to the system was already agreed between Chancellor Angela Merkel and Vice-Chancellor Sigmar Gabriel, who leads Merkel's junior partners in the government, the Social Democratic Party.

uhe/pad (Reuters, AFP, dpa)

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