Crunch Time: Ainte-Red Brace for 33 Billion Euros Less Until 2029
Red-black coalition needs to reduce spending by 33 billion by 2029
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Germany's Union and SPD are gearing up for significantly leaner tax revenues in the upcoming years. States and municipalities will feel the squeeze too. A recent estimate pegs the potential loss in billions of euros.
The tax game isn't looking favorable for the federal government, states, and municipalities in the foreseeable future, according to the latest report. The Working Group on Tax Projections has crunched the numbers for the years 2025 to 2029. They projects a total shortfall of 81.2 billion euros over this five-year period. The federal coffers alone could be lightened by 33.3 billion euros.
This new projection doesn't look promising for drafting the federal budgets for 2025 and 2026. Compared to the initial prediction, the federal government faces a deficit of 600 million euros for 2025 and 10.2 billion euros for 2026.
Lars Klingbeil, the Finance Minister, plans to present his 2025 budget proposal to the cabinet on June 25. The government will also decide on the key figures for the 2026 budget before the summer break. The draft budget for the coming year and the financial strategy up to 2029 will be presented post summer break, enabling immediate deliberations in parliament.
"Time to Deploy the Investment Booster!"
Klingbeil has pledged to swiftly kickstart the investment easing process. "We need to strengthen revenues primarily through higher economic growth, consequently creating new financial flexibility," says Klingbeil. "We must promptly and strategically allocate the billions in investments from the infrastructure special fund." Key structural reforms will also be implemented: "Our focus is now on reinvigorating the economy within our borders and preserving jobs."
Klingbeil specifically aims to expedite a higher depreciation on the tax on investments. "I have decided that we will immediately implement the investment booster and also wish to decide on it in the cabinet before the summer break," says Klingbeil. "We're banking on gradual depreciation on investment equipment of 30 percent from 2025 to 2027." The reduction in the corporate tax rate, agreed upon by Union and SPD, will also be implemented from 2028.
The proposed changes to the budget are unaltered for planning purposes. Compared to the previous estimation, the shortfalls are mainly due to the incorporation of recent tax reliefs, like the offsetting of cold progression. These anticipated variations are already factored into the budget planning process.
"Still Rough Seas Ahead"
Klingbeil acknowledges the economic environment is still challenging. The tax revenues are roughly in line with anticipations during coalition negotiations, he says. "Compared to the previous estimates, we're facing a slight squeeze in 2025 and 2026, but a slight relief from 2027 onwards," says Klingbeil. The results clearly indicate: "We need to boost our revenues through greater economic growth. Only then do we create new financial chances."
Sources: ntv.de, rog/rts
- Economic Growth and Revenues
Germany's projected tax revenue shortfall of 81.2 billion euros from 2025 to 2029 is attributed to various economic and structural factors. These include reduced growth forecasts, market volatility, and the lingering impact of past energy crises and inflation. To counteract this anticipated deficit and fuel sustainable economic growth, the German government has initiated massive fiscal measures, such as an expansive investment package reaching up to €1 trillion over the next decade[1].
A key part of this package includes a €500 billion fund to restore the country's infrastructure—focusing on roads, bridges, and schools—with €100 billion earmarked for climate-related projects. Moreover, the government has adopted an open-ended borrowing allowance to support defense spending. These fiscal expansions are aimed at jolting GDP growth, with predictions now pointing to 1.5% growth in 2026 and 2.0% growth in 2027[2].
In addition to this investment push, thorough structural reforms are deemed crucial to ensure the long-term sustainability of growth and fiscal health[1][2][3]. Key areas requiring change include reforming the energy sector to minimize costs and stabilize supply, updating the renewable energy framework to increase efficiency and market integration, and overall enhancing economic competitiveness through targeted policy adaptations[2][3]. The new energy minister's top priority is expected to be lowering energy costs and implementing market-based mechanisms in renewable energy policy, indirectly supporting economic stability and tax revenue generation by promoting healthier industrial and consumer activity[1][3].
"In light of the projected tax revenue shortfall, the Finance Minister, Lars Klingbeil, plans to present a strategic investment plan to boost economic growth and generate new financial resources. This plan includes higher depreciation on the tax on investments and structural reforms to stimulate the economy, with the aim of preserving jobs and creating a more competitive business environment."
"To counteract the anticipated deficit, Klingbeil has pledged to deploy the investment booster, primarily focusing on higher economic growth, and strategically allocating billions from the infrastructure special fund. The government also plans to implement key structural reforms, such as reforming the energy sector and updating the renewable energy framework, to ensure long-term sustainability of growth and fiscal health."
