German tax squeeze adds to coalition tensions

German tax squeeze adds to coalition tensions

German tax squeeze adds to coalition tensions

Germany has said it expected its tax intake to be smaller than initially expected in 2024, adding to budget tensions dividing the Chancellor Olaf Scholz’s coalition.

Berlin would collect 30.8 billion euros ($33.6 billion) fewer than previously expected in the coming year, according to a biannual estimate published by the finance ministry.

The drop was largely the result of tax relief measures passed by the government in response to recent sharp increases in consumer prices.

The estimates were proof the government was “keeping its promise not to enrich ourselves on inflation”, Finance Minister Christian Lindner said.

Despite the drop in intake, Germany remained a “high-tax country”, Lindner said.

The government would nonetheless “not be able to afford everything we have undertaken”, he said.

Germany’s three-way coalition between the Social Democrats, the Greens and the pro-business FDP has been engaged in a fierce debate over spending priorities.

Increased military investments in the wake of the Russian invasion of Ukraine and cash needed to tackle climate change have added to Berlin’s budgetary headaches.

Lindner’s plans to present budget proposals in March had to be pushed back with the parties far from reaching an agreement.

“When preparing the budget for the coming year, we will strictly prioritise expenditure,” said Lindner, whose party the FDP is an advocate of balanced-budget orthodoxy.

“Instead of constantly inventing new spending programmes, we must return to a stability and supply-oriented fiscal policy,” Lindner said, spending only as much as is taken in tax.

Germany suspended its constitutional “debt brake” for three years from 2020 as it sought to manage the coronavirus crisis.

Berlin however plans to return to the budget rule in 2023, which limits annual new borrowing to 0.35 percent of gross domestic product, putting new pressure on expenditure.