Germany ministry finds nearly £11bn extra to spend at federal level

25 May 18

Germany’s federal government will have nearly €11bn more to spend over the next four years as a result of more tax revenue than expected, a German government source has told PF International.

The whole government, federal, regional and municipalities, can expect €63bn more in tax revenue than projected, with two-thirds of this already taken into account in the 2018 budget, the ministry explained. 

A Federal Ministry of Finance spokesperson told PF International the additional €10.8bn was a product of the country’ strong economy and the profit and earnings of Germany’s industries and people.

The additional revenue will be spent at federal level, while the regions and municipalities would also see some extra revenue, the finance minister Olaf Scholz said earlier this month.

Scholz said in a statement, in German, that the government would “invest wisely” and protect itself against risks.  

The additional money will be invested into political programmes, including providing tax relief for low and middle-income earners and to digitalisation.

Of the €10.8bn additional revenue, €2.4bn will be invested in a digital fund to be set up in 2018, which will improve digital access in schools and expanding the broadband network.

The finance minister said this would “provide a better financial basis for further investment in digitalisation”.

Some of the money would also be used to tackle the 2019 ‘cold progression’ tax increases – as Germany does not adjust tax brackets for inflation, unlike many other countries.

This means that average tax earners face a disproportionately high increase in their tax bill for any additional euro they earn.

This comes as the International Monetary Fund urged the country to increase public investment and boost productivity growth, earlier this month.

Michael Graf, tax partner at Dentons in Germany, told PF International: “The economy is running pretty well – there’s no change in tax law or anything like that, it’s just the fact that businesses are expecting profits to be higher.”

Although, he added, the government has talked about removing the ‘solidarity surcharge’, which adds 5.50% to taxes paid by individuals and corporations.

The solidarity surcharge is an additional fee on income tax, capital gains tax and corporate tax in Germany, which was introduced in 1991 to fund the economic development of the east of the country and cover the costs of the reunification, such as rebuilding infrastructure.  

Graf said: “Abolishing the solidarity surcharge has always been first on the list [of pledges during elections and coalition talks].”

Former finance minister Wolfgang Schaeuble said last year that he would like to start dismantling the surcharge in 2020.

Graf also suggested a major reform of a complex tax system in Germany was needed.

He said that some exceptions and deductions were “so complicated” that no one can understand “if they fall within that exception of not”.

“Even I, as a tax advisor, am struggling to really understand the rules and when exceptions are applicable”, Graf added.

“If we had a simpler tax system, they [the authorities] wouldn’t need as many people working as they do now.”

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