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Germany to use extra tax revenue to cut borrowing
BERLIN - Germany’s federal government will reap around 2 billion euros ($2.6 billion) more in tax revenue than expected this year and plans to use it to cut new borrowing in 2006, Finance Minister Peer Steinbrueck said on Wednesday.
“I estimate that we will have extra revenue compared with our forecast of around 2 billion euros,” Steinbrueck told Deutschlandradio Kultur. “I will use it to reduce net new borrowing.”
A finance ministry spokesman confirmed that Steinbrueck was referring to this year’s borrowing plans.
Stronger growth in Europe’s biggest economy has led to a surge in tax income that Steinbrueck said will boost expected revenue by around 7 billion euros to be shared between local authorities, the 16 states and the federal government.
Steinbrueck’s budget planning for this year foresaw net new borrowing of 38.2 billion euros, falling to 22.0 billion euros in 2007.
“The 38 billion is simply too much,” Steinbrueck said. “We are cutting it to 22 billion next year but we are still a long way from reducing our debt burden. We are only slowing the speed in which we take on debt.”
Steinbrueck said Germany would bring its budget deficit for all levels of government below the European Union’s three percent of gross domestic product (GDP) limit this year, having breached the ceiling for the previous four years.
“That’s certainly pleasing,” Steinbrueck said.
The DIW economic research institute said it was reducing its 2006 deficit forecast to 2.5 percent from 2.7 percent.
“That is linked to the very good development of tax revenues. In particular, profit-dependent taxes have until now developed better than expected and sales tax (revenues) have also risen,” said Dieter Vesper, a tax expert at the DIW.
“That points towards to more dynamic domestic demand.”
The jump in tax receipts has increased pressure on the government to reduce or even scrap a three-point increase in sales tax set to take effect at the beginning of next year.
The ruling coalition of conservatives (CDU/CSU) and Social Democrats (SPD) says it needs the extra cash to help cut the deficit and reduce non-wage labour costs.
Steinbrueck has held firm and defended the plan again on Wednesday, saying it would not have as negative an impact on the economy as many analysts predicted.
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