German Tax Revenues seen Plunging in 2003 and 2004

The German Finance Ministry on Thursday announced federal and state revenues were likely to decrease by nearly €20 billion this year and next, as Europe’s largest economy continues to struggle. Presenting the latest tax estimates from the government’s experts, the ministry said €8.2 billion less will flow into federal and state coffers this year and in 2004 the government will have to make do with €10.9 billion less than had been previously expected. The added burden each year will be split roughly evenly been the federal and state authorities. The Finance Ministry said in a statement that Germany’s moribund economy was the main culprit for the poor tax receipts. German growth has ground to a halt in recent years and unemployment remains chronically over ten percent of the workforce. “The development of income tax revenues in 2003 mirrors the labor market situation,” the Finance Ministry said. “Sales tax revenue continues to suffer from weak domestic demand.” The grim forecasts for tax revenue come only a few weeks after German Finance Minister Eichel admitted the federal government would be forced to borrow a record amount in 2003. On October 23, Eichel said deficit spending would reach an unprecedented €43.4 billion this year – more than double than the expected €18.9 billion – as failing tax revenues and the flagging labor market squeezed the government from both ends.