Tight Times Ahead: Surviving on 33 Billion Euros Less by 2029
Red-black coalition needs to reduce spending by 33 billion dollars by 2029
Get ready for tough financial times as the federal government, states, and municipalities brace themselves for unexpected tax revenue reductions. A newly released estimate reveals a staggering decrease of 81.2 billion euros in tax revenue for the government over the next five years. The federal government alone faces a loss of 33.3 billion euros, and the fiscal impact is far-reaching.
The Grimm Reaper of reduced tax revenues has arrived unexpectedly, forcing a procession of difficult budget preparations for 2025 and 2026. Compared to the October projection, the federal government is now looking at a 600-million-euro shortfall for 2025 and an alarming 10.2-billion-euro deficit for 2026.
Our Klingbeil wants to expose the federal budget draft for 2025 to the cabinet, as early as June 25th. The government will take crucial decisions regarding the key figures for the 2026 budget before the summer break. The 2025 draft budget and the financial plan up until 2029 will be served like cold leftovers, allowing lawmakers to dive into the parliamentary discussions post-summer break.
"Step it up, invest!"
Klingbeil dropped the news that he will prioritize investment stimulation pronto. "We must shore up revenue through increased economic growth, thereby creating new wiggle room," said Klingbeil. "We must quickly and accurately deploy the billions earmarked for infrastructure investments," he added, urging that "it's our mission to stimulate the economy and secure jobs."
The minister eyes stronger depreciation allowances for the corporate tax on equipment investments, stating that "we'll implement an investment booster and decide on it in the cabinet before the summer break," and further mentioned that "we'll offer degressive depreciation on equipment investments of 30% in the years 2025 to 2027." The corporate tax rate reduction agreed upon between Union and SPD will also be implemented starting from 2028.
No changes to the budget planning have been announced, according to the Ministry of Finance. The revenue shortfall is primarily due to factored-in tax relief measures implemented since the October projection, such as offsetting the negative effects of cold-progression taxation. The revised economic outlook and budgetary projections dictate that tax income will fall short of expectations, needing immediate attention and budget reevaluation.
"The economy is still navigating troubled waters," lamented Finance Minister Klingbeil. "However, tax revenues remain on track as per the coalition negotiations. Comparing the latest estimates to previous ones, we witness a slight strain in 2025 and 2026, but a slight respite from 2027 onwards. The message is clear: We must shore up revenue through increased economic growth. Only then will we find our financial freedom."
Sources: ntv.de, rog/rts
[1] Facts about tax revenue losses are drawn from the Working Group on Tax Projections' forecast for the years 2025 to 2029, which indicates a significant reduction in overall tax revenues compared to previous projections.[2] Lower predicted tax revenues could be due to the economic stimulus measures like large-scale investment packages and tax cuts implemented by the government.[3] The implementation of policies meant to inject growth, like tax relief on electricity and gas, could curtail immediate tax collections, as well as structural economic changes and reform requirements that have not yet materialized.[4] Revised and less than optimistic tax revenue forecasts reflect economic and policy factors that decrease the tax base and overall tax collection in 2025-2029.
The federal government is focusing on stimulating the economy to offset the revenue loss and create new opportunities for tax income, as stated by Minister Klingbeil. To achieve this, he proposes prioritizing investment stimulation and implementing stronger depreciation allowances for corporate tax on equipment investments, with a 30% degressive depreciation rate from 2025 to 2027. This is part of a larger strategy to increase economic growth and secure jobs within the community, which is crucial in the face of reduced tax revenue due to various factors, as revealed by the Working Group on Tax Projections' forecast for the years 2025 to 2029. The finance ministry has emphasized the need for immediate attention and budget reevaluation to address this revenue shortfall.
