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Business

Good News as Germany Raises Tax Revenue Forecasts

Germany is set to pocket more than originally expected in tax revenues both this year and next year, the finance ministry has calculated. It's a welcome piece of good news for the country's strained public finances.

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An early Christmas present --forecasts of higher tax revenues

The ministry said it was set to receive 3.8 billion euros ($4.5 billion) more than originally expected in tax revenues in 2005 and 2006 combined, but it warned that Germany's public finances would nevertheless remain "extremely tight."

The federal, regional and municipal authorities were set to receive 447.9 billion euros in tax revenues this year, 2.9 billion euros more than previously budgeted, the finance ministry said in a statement.

The increase was attributable to lower federal transfers to the EU, and increased trade tax at a municipal level.

Next year good, too

Next year, tax revenues would amount to 457.4 billion euros, 0.9 billion euros more than previously budgeted, again due to positive developments in trade tax, which is a sort of income tax for companies, the ministry estimated.

"It is the first time in a long time that tax revenue forecasts have been revised upwards," the ministry said. "At the same time, it must be stated that the financial situation of all public budgets remains extremely tight," it added.

Symbolbild Mehrwertsteuer Rechnung und Geld

The finance ministry calculates higher trade taxes are one cause of the surplus

The federal budget alone would actually see a slight fall in revenues next year as a result of the still low rate of economic growth in Germany, the ministry said. In addition, gasoline tax revenues were set to decline as runaway oil prices weighed on consumption.

Berlin recently cut its forecast for growth next year to 1.2 percent from 1.6 percent, blaming high oil prices which it said would put the brakes on growth.

Getting Germany's public finances back in order is one of the pressing tasks facing the incoming government coalition of Social Democrat SPD and conservative CDU/CSU parties. The incoming government under chancellor-to-be Angela Merkel has calculated that 35 billion euros should be cut from the budget in 2007, which would translate into 425 euros in belt-tightening per person, or 1,350 euros for everyone in a job and paying social security.

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