Boom pours tax money into treasuries

The booming economy is pumping windfall money into German government purses, with the tax intake in March a whopping 16.5 percent higher than the same month last year, media reported Monday.

Boom pours tax money into treasuries
Photo: DPA

Business daily Handelsblatt, citing government sources, reported that federal and state tax income is soaring – a fact that could fuel renewed calls for tax cuts. Similar growth in tax receipts has not happened since 2007, when the sales tax was raised three percentage points.

In the first quarter, not even counting local taxes – which are collected separately – treasuries took in €12 billion more than in the first three months of 2010.

Nearly all the relevant taxes boomed in March, Handelsblatt reported. Corporate tax revenue climbed nearly 50 percent because of soaring profits. Income tax and sales tax receipts also rose strongly.

The windfall could drive renewed efforts by the pro-business Free Democratic Party – Chancellor Angela Merkel’s junior coalition partner – for tax cuts and tax reform. The ailing party has suffered in the wake of the financial crisis because the pressure on government finances has left it unable to pursue its totem issue of tax cuts.

FDP party chairman Guido Westerwelle was last week forced to step down amid woeful state election performances and poor national poll results.

“If growth and consolidation continues this way, I see a prospect for tax relief in 2012 or 2013,” the party’s state chief in North Rhine-Westphalia, Daniel Bahr said. “We have to achieve a fair rate, so that an average earner keeps more than half a pay rise.”

Stabilizing the budget and the euro currency took precedence, however, Bahr said.

The anointed new FDP chief, Philipp Rösler, has also raised the issue of tax relief in recent days, though he has not given a time frame.

The Local/djw

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German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.