The German Government is likely to run a surplus for the next few years as the strong economy fuels growth in tax revenue.
The Working Party on Tax Revenue Estimates has predicted that total tax revenues will rise from around EUR671.7bn (USD720bn) in 2015 to approximately EUR795.6bn in 2020, with federal, regional, and local governments all expected to see revenue gains.
Tax revenues for 2015 will be EUR5.2bn higher overall than forecast in May 2015. However, tax revenue is expected to be EUR5.2bn lower in 2016 than the May 2015 forecast. This is because of upcoming changes to personal tax allowances and child allowances and a Federal Fiscal Court ruling on corporate and trade tax rebates for 2001 and 2002. Overall tax revenue for the 2017 to 2019 period is expected to be higher than anticipated in the May 2015 estimate.
According to the Finance Ministry, the new tax revenue estimates “reflect the state of the persistent, favorable macroeconomic environment in Germany.”
“Companies and households are benefiting from this in terms of rising profits and incomes respectively. Domestic demand is the mainstay of growth. The labor market continues to develop in an encouraging manner. The German businesses are well positioned by international comparison,” the Ministry said.
In May, Finance Minister Wolfgang Schäuble announced that income tax thresholds would be increased in line with inflation in 2016 to alleviate the effects of “fiscal drag,” which occurs when rising wages push more taxpayers into higher tax bands, a phenomenon long complained about by German taxpayers. However, this EUR1.5bn tax cut would be worth a mere 0.5 percent of GDP.
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