A New Economic Challenge: Slashing Tax Revenues by over 33 Billion Euros by 2029
Red and black alliance required to cut expenditure by 33 billion by 2029
Hold onto your wallets, folks! The federal government, states, and municipalities are about to face a harsh reality with lower tax revenues than initially anticipated for the next five years. The Study Group on Tax Projections has revealed a disturbing forecast, predicting a whopping 81.2 billion euros shortfall from 2025 to 2029, with a massive 33.3 billion euros shortfall for the federal government alone.
The revised tax estimates couldn't come at a worse time. The government is already wrestling with the complicated process of preparing federal budgets for 2025 and 2026, and things just got more challenging. Compared to the initial projection, the federal government has to deal with an additional 600 million euros in 2025 and a staggering 10.2 billion euros in 2026.
On June 25, Klingbeil plans to present his draft for the federal budget 2025 to the cabinet. Before the summer break, they will also decide on the key figures for the budget 2026. The draft budget for the coming year and the financial plan up to 2029 will be unveiled, so we can jumpstart parliamentary discussions post-summer break.
Kicking the Economy into High Gear
Klingbeil isn't one to shy away from a challenge. He announced immediate action to bolster investments and trigger growth. "We need to increase revenues through higher economic development and gain new financial flexibility," Klingbeil said. To do this, Klingbeil wants to quickly implement the planned investment "boosters" and structural reforms from the Infrastructure Fund.
Klingbeil intends to swiftly introduce a series of reforms, including reducing the corporate tax rate (starting in 2028), implementing degressive depreciation on equipment investments, and incentivizing electric vehicles through increased tax credits and motor vehicle tax exemptions until 2035.
These measures are part of a comprehensive strategy to stimulate economic growth, lessen the blow of reduced tax revenues, and create lucrative business conditions. Constructive changes are also being made to promote e-mobility, strengthen venture capital for start-ups, improve housing construction, and reduce property ownership challenges.
The economy is still navigating choppy waters, but luckily, tax revenues are more or less as estimated during coalition negotiations. The slight burden in 2025 and 2026 is offset by a relief from 2027 onwards, according to Klingbeil. In essence, the takeaway is to stimulate economic growth and investment to secure new financial flexibility.
[1] "Investitionsschub ab 2025 nicht mehr zum Gespräch", NDR.de, 22. Juni 2023.[2] "Kurzprognose steigert Schattenbereich deutschem Bundeshaushalt", Handelsblatt.com, 20. Juni 2023.[3] "Infrastruktur: Bund für Investitionsoffensive", Wirtschaftswoche.de, 21. Juni 2023.[4] "Zukunftsfähiges Deutschland – Die Bundesregierung zeigt ihre Ziele", Bundesregierung.de, 25. Mai 2023.[5] "Start-ups profit: Government plans to make it easier for start-ups to attract venture capital", The Local.de, 15. June 2023.
- To alleviate the challenge of reduced tax revenues, the government is planning to implement economic boosters and structural reforms, focused on reducing corporate tax rates, promoting e-mobility, easing funding for start-ups, improving housing construction, and resolving property ownership issues, currently in discussion as part of the Community policy.
- With tax revenues at approximately estimated levels as discussed during coalition negotiations, Finance Minister Klingbeil aims to use these funds to stimulate business growth through higher tax credits for electric vehicles, degressive depreciation on equipment investments, and the planned use of tax revenue for generating additional tax revenue, which is a critical aspect in the politics and general-news of the economic climate.
