Predictors of tax revenue reduction estimate 2025 figures.
The projected tax revenues for 2025 within the traffic light coalition coalition fail to meet expectations. Despite a small surplus of 0.7 billion euros for the federal government, the budget deficit will not be eliminated.
Some in the coalition had high hopes for these figures, anticipating the amount of tax income expected for the following year and its potential impact on resolving the budget issue. However, the latest forecast reveals a minimal relief for Finance Minister Christian Lindner's budget, but tax revenues alone cannot solve the problem.
For the overall state, which includes the federal government, states, and municipalities, the estimators forecast tax revenues of 982.4 billion euros for 2025. This is 12.7 billion euros less than the projection in May. The prediction for the current year is also pessimistic, with a deficit of 8.7 billion euros. By 2028, the estimators now predict a shortage of 58.1 billion euros in tax revenues compared to the spring estimate.
"Requires economic growth"
The estimators do predict a small surplus of 0.7 billion euros for the federal government alone, but this is mainly due to changes in payments to the EU. This brings little additional flexibility to Lindner's budget, which is based on the spring forecast. "In fact, we will need to tighten our belts even more. Not every government service will be possible," stated the FDP leader while presenting the figures in Washington. "We require economic growth."
The traffic light government intends to spend 489.8 billion euros next year, with more than a tenth on credit. This is permitted by the debt brake. However, the opposition, the auditor general, the Bundesbank, and economists have criticized Lindner's figures as unrealistic or exaggerated.
The FDP leader has given parliamentarians a challenging task, as he could not reach an agreement with Federal Chancellor Olaf Scholz and Vice Chancellor Robert Habeck on where to cut spending until the budget was submitted to the Bundestag. This resulted in a financing gap of two to three billion in the draft.
Union anticipates larger financing gap
Parliamentarians now need to find this money. Reducing the budget heavily is not the parliament's role, according to the SPD budget spokeswoman Bettina Hagedorn, who recently expressed her concerns to "Politico". Some had hoped for the tax forecast, but 0.7 billion is not enough to bridge the gap. It might help that funding for the Intel settlement in Magdeburg will not be required temporarily due to the delay. However, the use of these funds is still not agreed upon by Scholz, Habeck, and Lindner.
The Union believes that the financing gap is much larger than the traffic light coalition claims. It considers the forecasts for the citizen's allowance and the impact of the planned growth initiative with tax reliefs and employment incentives to be overly optimistic. Union faction deputy Mathias Middelberg has already warned in the "New Osnabruecker Zeitung" that if the traffic light coalition passes the budget in this manner, "there is a risk of a sudden halt in funding programs in 2025".
Economic performance shrinks
A significant factor affecting the tax estimate results is the Federal Government's cautious expectations regarding economic development. "The challenges are greater than we may have recognized in recent years," Economics Minister Habeck recently acknowledged.
He has just announced the second consecutive recession for 2024. The economy is shrinking, in part, due to businesses and private individuals holding back on investments due to geopolitical uncertainty. Internal disputes within the traffic light coalition also contribute to uncertainty, Habeck admitted.
The poor economic situation, however, also provides Lindner with some room for maneuver in securing new loans through a mechanism in the debt brake. The Finance Minister may borrow around 5.4 billion euros more than initially thought in the coming year. This helps to fill financing gaps - but whether it will completely do so is uncertain, as higher spending, such as on citizen's income, typically needs to be factored in during weak economic times.
Lindner opposes new special funds
The Greens and SPD have not given up hope of making an exception to the debt brake or establishing debt-financed special funds outside the budget. This could potentially finance the new idea of Economics Minister Robert Habeck - an investment fund for the economy. Lindner opposes new special funds and has now presented a new argument in this debate: Germany struggles to comply with the EU's debt rules, and special funds are fully counted - unlike in the calculation of the national debt brake. In Brussels, the rule is: debt is debt.
After the tax estimate, it's now getting serious in the Bundestag. The budget holders have three weeks to find the missing billions. Then, the budget committee clean-up session is approaching - the legendary showdown that often lasts until the early morning hours. According to the current plan, the budget is set to be decided in the large plenum by the end of November.
In light of the revised tax revenue estimates, the Finance Minister acknowledges the necessity of economic growth to alleviate the budget deficit. Despite the projected surplus of 0.7 billion euros in tax revenue for the federal government, it falls short of the required amount to eliminate the budget deficit.
The Union, on the other hand, anticipates a larger financing gap than the traffic light coalition claims, citing overly optimistic forecasts for the citizen's allowance and the planned growth initiative with tax reliefs and employment incentives.
