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Expected tax windfall a boost for next German government – Expat Guide to Germany

Germany could pocket billions of euros in extra tax revenues in coming years, updated estimates on Thursday showed, giving the next government extra fiscal headroom to pay for green investments.

“With succesful financial management we have created room to play with for the next government,” Finance Minister Olaf Scholz told journalists at a press conference.

Scholz, who is likely to succeed Angela Merkel as chancellor after his party, the Social Democrats, won a general election in September, said the new estimates from the finance ministry were “pleasing”.

Through 2025, all levels of government are forecast to collect an additional 179 billion euros ($205 billion) compared with the previous estimate in May.

The large difference was attributable to better than expected “macroeconomic figures and good tax returns in 2021”, the finance ministry said in a statement, as Europe’s top economy rebounds from the pandemic shock.

The federal German government will see about 60 billion euros more in revenues between 2022 and 2025 than previously estimated.

Scholz’s party is in intense negotiations with the Greens and the liberal FDP to form the next coalition government, with the question of how to finance green investments at the centre of the debate.

In a preliminary agreement, the parties agreed they would not touch Germany’s constitutional “debt brake”, which limits deficits to 0.35 percent of GDP, and would not raise new taxes.

The brake has been suspended temporarily while Germany tackles the coronavirus pandemic, but is expected to come back into force in 2023.

The parties have agreed on the need for massive investments to support the transition of the German economy to net zero, but have yet to give an exact sum or lay out how the investments will be financed.

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