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Germany faces challenge as 2025 tax forecast sinks

May 16, 2024

Germany's federal, state and local governments can expect less revenue next year than had been assumed. Finance Minister Christian Lindner said it was clear that the public sector would have to tighten its belt.

Berlin | Beginn 75. Ordentlicher Bundesparteitag der FDP
Finance Minister Lindner and the FDP have been lobbying their coalition partners to cut spending, as all three ruling parties probably start turning their focus towards the next federal election campaign next yearImage: Tobias Schwarz/AFP/Getty Images

Germany's Finance Ministry expects €21.9 billion less than it had predicted in tax revenue next year compared with a forecast toward the end of 2023.

German Finance Minister Christian Lindner said that Germany's federal, state, and local governments would need to make savings as a result of the new prognosis.

Spending and borrowing has been a major point of friction in the country's three-party coalition government for months now, if not longer.

What Finance Minister Lindner said

Lindner said that a €15.5 billion chunk of the shortfall was down to a lower tax take than had been expected when the forecast was made in October.

The finance minister said the revised estimate "destroys the illusion of all those who thought that money would just fall from the sky."

"What I repeat almost like a mantra in view of the exorbitant political wishes is now available in black and white: There is no new financial room for maneuver in the foreseeable future."

"We have to concentrate on the essentials," Lindner said, adding that the gap meant discussions about the 2025 federal budget would continue to be "very challenging."

"This requires discipline and willpower," said Lindner, who heads the business-focused Free Democrats, the most fiscally conservative of the three parties that make up Germany's ruling coalition.

The German government's 2024 budget posed a particular challenge for Germany's governing coalition. A judgment by the country's Constitutional Court, forbidding reusing emergency funds originally earmarked for coronavirus spending for other issues, left ministers with a roughly €17 billion gap to fill the current year alone — and more for the coming years.

German government rushes to slash budget after court ruling

The redirected COVID emergency funding would not have had to be counted towards Germany's self-imposed annual borrowing limits in the same way as normal spending does.

Several of Germany's government ministries have said they do not feel able to stick to savings targets already put forward by Lindner — a position that he has criticized. 

More growth is key, minister says

The results demonstrate that financial challenges are likely to become greater in the coming years, Lindner said. Germany has been experiencing weak growth, with the government this year forecasting an increase in gross domestic product of only 0.3%. For 2025, it foresees growth of 1%.

"If we don't take countermeasures now, the trend will worsen, especially for the federal government. We can't just pile on the structural challenges with more and more debt. What we need is obvious: more growth, we need an economic turnaround," said Lindner.

Lindner said there needed to be an emphasis on strengthening economic growth and all "sensible and desirable spending" would need to be based on a strong economy, he said.

Lindner cited the need to expand renewable energies under the German Renewable Energy Sources Act as an additional risk. The cost could be up to €9 billion higher this year than the estimated bill of about €10 billion, he said.

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rc/msh (AFP, dpa, Reuters)