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Coronavirus won't blow hole in German budget

Aditya Sharma
April 19, 2020

If the post-lockdown economy picks up, Germany may not have to take on more debt than has already been approved, the finance minister said. But some of the country's high-earners may face a higher tax bill, he added.

Empty streets in front of the Brandenburg Gate in Berlin
Image: Getty Images/M. Hitij

Germany will be able to rein in the debt incurred to manage the coronavirus pandemic if the economy improves in the second half of the year, Finance Minister Olaf Scholz said in an interview, published Sunday. 

Scholz did not rule out the possibility of incurring additional debt beyond €156 billion ($169 billion) that was approved by the German parliament in late March, but he told the Welt am Sonntag newspaper that might not be necessary "if we manage to move the economic curve upwards again in the second half of the year."

Read more: What's in Germany's emergency coronavirus budget?

Still, he added, it's "far too early to give the all-clear" despite the decreasing infection rate.

The parliament raised Germany's debt ceiling, allowing the federal government to borrow around €100 billion more than would have otherwise been permitted to fight the crisis and lessen the impact on workers and businesses in Germany

The new spending was aimed at funding the country's health care and helping companies at risk of defaulting on their loans.

Dehoga, an association of German hotels and restaurants, said 70,000 establishment could go bankrupt due to the effects of the coronavirus.

"We had to close first, and we'll be the ones who suffer the longest," association head Ingrid Hartges told the Bild am Sonntag. "Without additional state support, every third establishment faces bankruptcy."

People standing in front of a restaurant in Heidelberg
Restaurants and other businesses hard hit by coronavirus social distancing restrictions could receive state supportImage: picture-alliance/D. Kubirski

Higher taxes for top earners

Scholz also said top earners may face higher taxes after the crisis, to balance out the high level of state support made possible by the country's social welfare system.

Scholz said his Social Democratic Party (SPD), in a grand coalition with Chancellor Angela Merkel's conservatives, has long held the position that lower-income groups can be helped if high-income earners pay more in taxes. Such taxation needs to be "fair and just," he said.

But Economic Affairs Minister Peter Altmaier rejected the call for higher taxes.

"Individual discussions on tax increases for certain people, groups or branches are wrong and harmful," he told the Bild am Sonntag newspaper. "We have to be frugal and no one should have to pay higher taxes."

Read more: Germany counts costs of economic shutdown

Post-coronavirus stimulus

The government will also be looking at providing economic stimulus at the end of the coronavirus lockdown, which has shut businesses and kept people at home. 

Read more: Coronavirus: EU fears a rise in hostile takeovers

"When it is the right time, we will get measures on their way to stimulate business again," Scholz said. "Those will have to be as economists would imagine them — targeted, fit for purpose and limited in time.

"Also, we will keep our eyes fixed on the modernization of our country, such as with the reduction of carbon-dioxide emissions, the expansion of electric mobility and digitization."

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