Germany faces tax revenue squeeze amid budget gridlock

The German Finance Ministry said Thursday that government tax revenue will be less than expected in 2024, adding to the challenges faced by Chancellor Olaf Scholz's government. 

Berlin would take in €30.8 billion ($33.6 billion) less than anticipated in the coming year, the ministry said in a biannual estimate. 

German Finance Minister Christian Lindner said the drop in revenue was due to recent tax relief measures intended to help citizens cope with inflation and the rising cost of living.

Lindner touts tax relief, but urges fiscal restraint

Lindner touted the government's efforts to give money back to individuals and businesses during difficult economic times. 

At the same time, Lindner said Germany does not have a tax revenue problem: "We are a high tax country."

The leader of the business-focused Free Democratic Party said Berlin must tighten it's belt and resist new expenditures.

Chancellor Olaf Scholz's promise to raise the German defense budget by €100 billion amid Russia's war on Ukraine and investments needed to tackle climate change have complicated Germany's budget outlook. 

"Instead of constantly inventing new spending programs, we must return to a stability and supply-oriented fiscal policy," Lindner said.

The finance minister is particularly keen on fulfilling the electoral promise of reinstating the so-called "Schuldenbremse" (debt brake), which is enshrined in Germany's Basic Law or constitution.

The rule, which limits Germany's debt-to-GDP ratio, was suspended in 2020, as the government took fiscal action to boost the economy amid the COVID-19 pandemic.   

Tensions within the coalition

Lindner's statements urging fiscal restraint could put him at odds with the two other parties in Germany's ruling coalition, the center-left SPD and the environmentalist Greens.

Both the SPD and Greens have fought against cuts to social programs in the next budget. The Greens in particular have called for new investments to transition to a more climate neutral economy.

The FDP has also ruled out tax increases to fund new investments or government programs, due to the negative impact on the economy. 

The three parties are struggling to reach a compromise on the issue, with Lindner saying a decision expected on the budget set for June 21 will have to be pushed back. 

Meanwhile, the opposition conservative Christian Democratic Union (CDU) has criticized the government's "lethargic" budgetary policy.

Christian Haase, a member of the CDU who sits on the Budget Committee in the Bundestag, has also derided the SPD and Green as "utopians" who must be stopped.  

wd/jcg (Reuters, AFP, dpa)    

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