(Bloomberg) -- The German federal government expects €12.6 billion ($13.6 billion) less in tax revenue in the five years through 2028 than estimated in May as Europe’s biggest economy struggles to grow.
Finance Minister Christian Lindner said that the latest tax estimate published on Thursday show that the country needs a turnaround.
“We can’t rely on tax revenues to keep flowing — we need economic growth,” said Lindner, who is also the chairman of the business-friendly Free Democrats. “It’s high time we focused on what will put our country back on the road to success: a real shift towards more dynamism.”
The drop in expected tax revenues is due to weaker economic output, which leads to deviations in estimates.
The latest tax numbers underscores Chancellor Olaf Scholz’s coalition fighting to regain momentum after a series of regional election defeats and historically weak polls less than a year ahead of general elections. The German economy is expected to contract the second consecutive year for the first time in more than two decades.
The additional fiscal restraint will make it even more difficult to close a gap in the 2025 budget, which Lindner on Thursday put at €13.5 billion. He expects lawmakers in Germany’s lower house of parliament to figure out how to close it in November, before it goes to the upper house for approval by the end of the year.
“There is no scope for maneuver in the budget,” said Lindner, who is in Washington attending the annual meetings of the International Monetary Fund. “On the contrary: we’ll have to consolidate further. Not every service that the state currently offers will still be affordable.”
He also highlighted that the €7 billion in subsidies earmarked for US chipmaker Intel Corp in 2024 — which paused its investment on a factory in eastern Germany — will be used exclusively to make up for the budget shortfall. Those funds are allocated in Robert Habeck’s economy ministery and some politicans had hoped they could dispersed elsewhere.
The economic and budgetary constraints have fueled speculation that the government might not survive until elections scheduled for September 2025. Lindner rejected the notion that his call for strong fiscal restraint should be considered a challenge to his coalition partners’ appeals to boost output via spending.
The tax estimates — compiled by a working group of officials from the Finance Ministry, Economy Ministry, the Federal Statistic Office, the Bundesbank, the German Council of Economic Experts, five research institutes, and regional and municipal administrations – are published twice a year and essential to the government’s budget planning.
(Updates with budget shortfall in sixth paragraph)
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