Surprise tax revenue could help German parties strike coalition deal By Reuters – News Couple
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Surprise tax revenue could help German parties strike coalition deal By Reuters


© Reuters.

By Michael Nenber

BERLIN (Reuters) – The three parties working to form Germany’s next ruling coalition can count on windfall tax revenues in coming years to fund promised investments in a more climate-friendly and digitized economy, sources familiar with the matter said on Monday.

The center-left Social Democrats (SPD) and the pro-business Greens and Liberal Democrats face a massive spending challenge as they agreed in exploratory talks to return to strict debt limits from 2023 and avoid tax increases.

In welcome news for parties, updated tax revenue estimates will show the federal government additional fiscal space of up to 10 billion euros ($11.5 billion) a year, possibly slightly more, than the estimates released in the spring, according to two sources. to Reuters.

The sources, who spoke on condition of anonymity, said the windfall tax revenue would be higher for the 16 states, which under Germany’s federal system are responsible for a large portion of public investment.

For the federal government, states and municipalities together, the updated estimates would provide additional scope for public spending “in the mid-double-digit range of one billion euros” per year, the sources added.

Outgoing Finance Minister and prospective Chancellor Olaf Schultz is expected to present his latest tax revenue estimates on Thursday, when he is also likely to comment on the spending priorities of the next coalition government.

The unexpected tax gains are expected to come from a stronger-than-expected economic recovery from the pandemic, especially in 2022, as well as the overall effects of higher inflation.

Industry association BDI said the three parties’ pledge to refrain from raising taxes was not enough to support businesses. He called for additional measures to improve corporate liquidity and reduce bureaucracy.

BDI Managing Director Joachim Lang said the next government should allow companies to reduce investments in digitization and climate protection faster, and should allow more companies to recoup losses.

The three parties are considering various proposals in the ongoing coalition negotiations to create more financial strength for Europe’s largest economy through various budget tricks.

Ideas under discussion include increasing federal borrowing next year to allow for a one-time injection of billions of euros into the government’s Climate Investment Fund, delaying the first repayment of coronavirus debt by five years until 2028, and extending the repayment period by three decades. , until 2058.

To stimulate private sector investment in a carbon-neutral economy, the three parties – now scrambling for details of a coalition agreement – are also looking to boost the role of German state development bank KfW.

In addition, the Federal Office for the Environment urged parties to end climate-damaging government subsidies amounting to 65 billion euros annually, such as lower tax rates on diesel, tax cuts for corporate cars, and energy tax exemptions for industry.

The coalition working groups formed by the three parties are expected to present their policy findings as well as unresolved issues to party leaders by Wednesday, who will then attempt to draft a coalition agreement by the end of this month.

As part of the bickering and alliances, the parties must also find a compromise agreement on who will take control of the powerful Ministry of Finance.

The three parties hope to officially elect Schulz as the new chancellor in the week of December 6, although the Greens have warned that negotiations could take more time.

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