Tax estimate clouds budget: Finance Minister Klingbeil's challenge

Berlin. The CDU/CSU-SPD federal government must expect significantly lower tax revenues than previously anticipated in the fall when implementing its coalition agreement. According to the Ministry of Finance, tax estimators predict that €33.3 billion less will flow into the federal coffers during this period than previously expected in October. This is unlikely to make the job of the new Finance Minister, Lars Klingbeil, any easier.

"The results show: We must strengthen revenues through higher economic growth," explained the SPD politician. "This is the only way to gain new financial flexibility. We are therefore now initiating the most significant modernization of our country in decades." Overall, however, the tax assessors' results are largely in line with what was already expected during the coalition negotiations.

Tax estimators are also pessimistic about the federal government, i.e., the federal government, states, and municipalities combined. They expect revenues to be around €81.2 billion lower by 2029 than forecast in October.

An important basis for estimating tax revenues is the federal government's economic forecast. And at the end of April, this forecast showed that the economy is stagnating. For the third consecutive year, there has been no growth, and gross domestic product is stagnating. And the government expects little recovery next year, with growth of only 1.0 percent.

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Armed with these figures, the new Finance Minister, Lars Klingbeil, must now draw up the budget for the current year – significantly delayed due to the collapse of the traffic light coalition and the early federal election. He aims to push the plans through the cabinet on June 25 – and it is expected that little will remain of the draft drafted by his predecessor, Christian Lindner (FDP). Too much has changed politically since then, and the conservative-red coalition has set too many new directions.

The tax estimate for 2025 is still comparatively harmless, with estimators expecting €0.6 billion less revenue than in the fall. This is primarily due to the tax relief granted to citizens last year – but also to the weak economy. These figures have already been taken into account in the planning, Klingbeil said. However, preparing the budget will not be any easier.

Already on Wednesday, he had informed his cabinet colleagues in the Bundestag that, despite historic borrowing capacity, there was no unlimited scope. "Yes, we will also have to push ahead with budget consolidation," said the Vice Chancellor.

Whether the new budget can actually be passed as planned at the beginning of September will depend on how much Klingbeil's colleagues cooperate. The opposition, in any case, is putting pressure on the government: having to work with provisional budget management any longer, i.e., without a real budget, is bad for the work of the ministries, bad for the economy, and bad for the country as a whole, the Greens criticized.

When drafting their coalition agreement, the CDU/CSU and SPD were already clear that their numerous projects would not be easily financed – at least not without a significant economic recovery. All provisions of the coalition agreement are therefore subject to funding constraints. This means they will only be implemented if sufficient funds are available.

The figures from tax assessors should further underscore the significance of this rate. In the coming year alone, experts now expect the federal government's revenue to be €10.2 billion lower than in the fall. Even though the entire state could collect more than €1 trillion for the first time, Klingbeil must now sit down with Chancellor Friedrich Merz and the other ministers and prioritize. What will be financed first, and what needs to be addressed first?

With the negative tax estimate, the "few good projects" of the conservative-red coalition are rendered meaningless, fears Left Party politician Dietmar Bartsch. The coalition must submit a "package of measures for new growth and a fundamental reform of the debt brake to the Bundestag before the summer recess," Bartsch said.

Green Party budget officer Sebastian Schäfer also stated that the coalition is "in danger of quickly reaching a fiscal dead end with its coalition agreement wish list of spending projects." The air in the federal budget is becoming increasingly thin, and the conservative-red coalition must now set priorities and direct funds to where they will have the greatest economic and social impact.

A significant increase in defense spending is expected – this is due to the relaxation of the debt brake. This allows the federal government to borrow virtually unlimited amounts for the Bundeswehr and other defense purposes. Billions of dollars are also available, financed through debt, for infrastructure investments such as roads, railways, daycare centers, energy networks, the internet, and housing. However, the special fund may only be used for additional spending, i.e., only if significant investments are also planned in the core budget.

"The tax estimate makes it clear once again that we need to get our country back on track with massive investments in the future," emphasized Wiebke Esdar, deputy chair of the SPD parliamentary group in the Bundestag. The special fund for infrastructure has created the conditions for this.

The Tax Estimation Working Group meets twice a year, in spring and fall. The committee includes experts from the federal government, leading economic research institutes, the Federal Statistical Office, the Bundesbank, the German Council of Economic Experts, and representatives from the state finance ministries and local authorities.

RND/dpa