Finance

The federal government lacks more money than expected because of the corona crisis

The vaccination is progressing, the economy is doing better but it will take some time until the state finances recover from the corona hole. First of all, the federal, state and local governments have to deal with less money than expected.

The corona crisis has torn a huge hole in the state coffers – but the federal government is optimistic that the worst will soon be over financially. Because of the third corona wave, which is only slowly waning, the federal, state and local governments will have to get by with around 2.7 billion euros less tax income this year than expected in November.

The tax estimators also corrected their forecast downwards for 2022, as the Ministry of Finance announced in Berlin on Wednesday. For the years up to 2025, however, the experts are now more positive: They have raised their 5-year forecasts by 10 billion euros.

Scholz praises his financial policy in the Corona crisis

“Logging instead of messing was the right thing to do, our resolute aid policy is working,” said Finance Minister Olaf Scholz (SPD). Germany has its finances under control. “Such a success does not fall from the sky. It is the result of a formative policy, a policy that grabs instead of just watching.”

Because of the pandemic, there has been more uncertainty in tax estimates since last year than in the past. It is hardly foreseeable whether another wave of infections will slow down the economy and consumption again, how the virus will mutate and whether the vaccinations will progress as planned.

Most recently, the federal government’s aid programs had repeatedly depressed tax revenues, such as the reduced VAT rate in the catering trade, changed depreciation rules and new rules for offsetting business losses. However, the tax estimators assume that the state will earn around 33.8 billion euros or 4.6 percent more this year than in the crisis year 2020.

Altmaier: A turnaround is in sight

An indication that tax revenues could soon pick up again is the federal government’s economic forecast. “This year is the year in which we finally manage the turnaround”, Minister of Economic Affairs Peter Altmaier (CDU) announced in April. The government expects economic output to grow by 3.5 percent in 2021 – and is thus more optimistic than at the time of the previous tax estimate.

In view of the high pandemic costs and the expected low tax income, Vice Chancellor Scholz is planning with record debts for the current year. The Bundestag only recently approved its supplementary budget, thereby enabling it to receive new loans totaling 240.2 billion euros. The money is mainly earmarked for expenses related to the pandemic, such as corporate and family aid, and for health measures such as the purchase of vaccines.

The financial politician of the Union, Eckhardt Rehberg, emphasized that the low tax revenues were mainly at the expense of the federal government – on the other hand, the states and municipalities had already reached the pre-crisis level again this year. There should therefore not be any further aid from the federal pot. Rehberg also called on the federal government to “finally keep moderation” and not to promise new expenses without explaining the financing. “It is not a sign of strength to finance new expenses with debt, but the easiest way imaginable,” he emphasized.

Debt brake threatens: does it work out?

Scholz, on the other hand, plans to have 81.5 billion euros in new debt for the coming year. This would mean that the exception clause of the debt brake would have to be used again, which actually only allows a very small amount of net borrowing. However, the budget for 2022 will be decided by a new Bundestag after the general election. Until then, the election campaigners have to answer the question of how they want to deal with the difficult financial situation: continue to incur debt to cushion the consequences of the pandemic, increase taxes or launch an austerity program in order to comply with the debt brake again as soon as possible.

The tax assessment working group usually meets twice a year, in spring and autumn. The committee includes experts from the federal government, the five leading economic research institutes, the Federal Statistical Office, the Bundesbank, the Advisory Council for the Assessment of Economic Development in Germany, representatives of the state finance ministries and local authorities.

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