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Germany’s tax revenues are projected to fall nearly €60 billion short of earlier expectations over the next five years, intensifying budget challenges for Chancellor Olaf Scholz’s government and straining the already fragile three-party coalition.
The country’s latest economic forecast, covering 2024 to 2028, suggests a prolonged economic slowdown, with government officials warning of a likely recession for 2024—marking Germany's first back-to-back recession in over two decades.
The tax shortfall, estimated at €12.8 billion below prior forecasts for 2024, is attributed to reductions in income, business, and sales tax receipts. These are expected to fall short by €8.7 billion this year and by more than €11 billion each year from 2026 to 2028. The decline in tax revenue is deepening an already problematic fiscal gap in Germany's 2025 budget, which faces a €2.5 billion deficit with no clear solution for filling it.
Finance Minister Christian Lindner has responded to the figures by stressing there’s no room for additional spending and warning that “new spending wishes cannot be fulfilled.” This tough stance reflects his Free Democratic Party’s (FDP) commitment to Germany’s “debt brake” policy, which mandates tight limits on deficits and borrowing.
However, Lindner’s stance on the debt brake has fueled tensions within Scholz’s coalition, which also includes the Greens and the Social Democrats. Both parties are advocating for increased public investment, suggesting a relaxation of the debt limits to support critical economic initiatives. But Lindner argues that Germany’s focus should be on reforming inefficiencies within the welfare system, cautioning that taxpayer money shouldn’t be channeled to those who contribute little to the economy.
As the coalition debates how to navigate the nation’s fiscal landscape, Scholz’s government faces mounting pressure to address its strained budget while managing an economic downturn. This looming tax revenue gap has amplified questions about Germany’s fiscal future, with coalition divisions intensifying over the country's approach to public debt and welfare reform.
[With information from Kathimerini.gr]
