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Government Faces Fresh Tax Shortfall

Having already suffered a dramatic decline in first-quarter tax revenues, the German government is facing the next serious obstacle to meeting its pledge of a balanced budget by 2004.

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German Finance Minister Hans Eichel: "There's no room for extra spending programs."

German finance officials slashed their tax estimate forecast for 2002.

The estimate of tax revenue generated at federal, state and municipal level in the current year was reduced by 11.7 billion euro. This means that Germany could fail to meet its pledge to the European Union of presenting a near balanced budget for 2004.

In February, the pledge had helped the country narrowly avoid an official warning by the EU over its growing budget deficit. Dietrich Austermann, budget expert of Germany's main opposition parties, CDU/CSU, said that in light of the revised estimate, Finance Minister Hans Eichel's pledge was "totally unrealistic and sheer illusion".

Karlheinz Weimar (CDU), the finance minister for the state of Hesse, said that Eichel's pledge had become "practically unachievable".

But Eichel insisted the latest forecast did not call into question his promise made in February. "If the economic recovery that everyone expects sets in, we will meet this goal. But there is no room for extra spending programs or further measures that limit revenues," Eichel said.

Wolfgang Wiegard, head of the government's independent panel of economic advisers, also said he believed Germany could still reach its budget goals. "But it will require a truly great effort and iron discipline.

There's no room for election promises," Wiegard told Handelsblatt.

Martin Wansleben, head of the DIHK federation of chambers of trade and commerce, called on Eichel to further step up his austerity course. "But tax increases are just as taboo as moving away from the European stability pact," he said.

The cuts would have to be made most of all in social spending, Wansleben argued.

People close to the finance officials said it could not be ruled out that the government would now look at special ways to balance its 2004 budget. The sale of real estate was one such option, they said.

A similar move in 1997 helped the then CDU/CSU-led government to reduce the country's budget deficit to 2.7% of gross domestic product, below the EU's top limit of 3%.

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