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Further Downside Risks to Downwardly Revised Tax Estimates

GERMANY
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The German Ministry of Finance has revised downwardly its 2024 tax revenue estimates (incl. municipality taxes) by E13.8bln to E950.3bln (1.4% lower). Also estimates for later years have been downwardly revised, by around E16bln (~1.7% of revenue) on average over the forecast horizon until 2028 (vs autumn 2023 estimates).

  • Downside risks to the previous tax revenue predictions have been flagged before by MNI ('GERMAN DATA: Tax Revenue Tracking Around E10bln Lower than YTD Forecast' - Apr 23).
  • Finance minister Lindner has confirmed that the revisions are mostly driven by overall weaker economic activity.
  • The tax estimates do not account for any budget impact by public policy which has not been formally implemented yet. This includes a potential E7bln tax package which has been reportedly on the table since at least March but has still be be debated in parliament ('GERMANY: Tax Cuts Likely Counter-Financed Elsewhere If Implemented', Mar 1). There might thus be further downside risks to the new 2024 revenue estimates.
  • Although not on the revenue side, there are also continued reports that departments are lobbying the Ministry of Finance to increase their budgets versus initial internal 2025 budget plans (which are not yet public). Initial plans for the 2025 budget are expected around July before being debated in the Bundestag.
  • While the misalignment will continue to provide a basis for criticism by leading opposition party CDU and put pressure on the public perception of the traffic light coalition, it seems likely that a consensus will be met at some point.
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The German Ministry of Finance has revised downwardly its 2024 tax revenue estimates (incl. municipality taxes) by E13.8bln to E950.3bln (1.4% lower). Also estimates for later years have been downwardly revised, by around E16bln (~1.7% of revenue) on average over the forecast horizon until 2028 (vs autumn 2023 estimates).

  • Downside risks to the previous tax revenue predictions have been flagged before by MNI ('GERMAN DATA: Tax Revenue Tracking Around E10bln Lower than YTD Forecast' - Apr 23).
  • Finance minister Lindner has confirmed that the revisions are mostly driven by overall weaker economic activity.
  • The tax estimates do not account for any budget impact by public policy which has not been formally implemented yet. This includes a potential E7bln tax package which has been reportedly on the table since at least March but has still be be debated in parliament ('GERMANY: Tax Cuts Likely Counter-Financed Elsewhere If Implemented', Mar 1). There might thus be further downside risks to the new 2024 revenue estimates.
  • Although not on the revenue side, there are also continued reports that departments are lobbying the Ministry of Finance to increase their budgets versus initial internal 2025 budget plans (which are not yet public). Initial plans for the 2025 budget are expected around July before being debated in the Bundestag.
  • While the misalignment will continue to provide a basis for criticism by leading opposition party CDU and put pressure on the public perception of the traffic light coalition, it seems likely that a consensus will be met at some point.