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03/12/2016

Germany set to face difficult financial year in 2016

Euro & Finance

Germany set to face difficult financial year in 2016

Wolfgang Schäuble

[European Parliament]

Wolfgang Schäuble is hopeful that his country will be able to stay in the black for 2016, despite the current “uncertain environment”. EurActiv’s partner Tagesspiegel reports.

According to current tax estimates for 2015-2020, presented by German Finance Minister Wolfgang Schäuble (CDU) on Thursday (5 November), 2016 will be a difficult financial year for every level of the German government.

The state is set to collect €14.5 billion more than in this year, but, according to Schäuble, the primary budgetary objective of a balanced budget with no new debts will only be achieved because of the 2015 surplus, possibly more than €5 billion, which will be carried over into the next year.

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The government was, “from today’s perspective”, able to balance the budget without any new debt, said Schäuble. He stressed that this November-estimate was made in a “relatively uncertain environment”, not just because of the refugee crisis, but also due to the “current weakness of the emerging markets”. Nevertheless, all levels of the government have “a solid financial base and are able to function”. Due to the secure financial outlook, there is room to manoeuvre in terms of meeting challenges head on.

Incalculable factors

Compared with the estimate made in May, the state can expect to collect €5.2 billion more, due mostly to the stable economy and higher-income workers. In total, revenues are expected to top €671.1 billion.

The incorrect estimate can be attributed to a change in the tax law, which was indeed known about in May, but whose effects were difficult to factor in. These included increases in tax-free allowances and child benefits, as well as a decrease in “cold progression”, the economic phenomenon that occurs when pay rises only compensate for inflation but still push their recipients into a higher tax bracket.

These measures add up to a shortfall of €5.5 billion. Additionally, in 2016, the treasury will have to deal with €5.6 billion in court-ordered corporate-tax repayments.

Total revenue is expected to reach €770 billion by 2019, an increase of 14% over the current year.

VW could become a liability

Ralph Brinkhaus (CDU) told Tagesspiegel that he was “quite relaxed” about the results of the assessment, but that keeping the budget in the black would be an “uphill battle”. As a result, he does not see any leeway for new projects in 2016.

The priority is the challenge posed by the ongoing refugee situation. Brinkhaus rejected calls from the regions for Berlin to increase its sharing of the financial burden, referring to agreements made in September. Schäuble called upon the minister presidents of the German Länder to exercise restraint.

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On the impact of the VW scandal, Schäuble declined to comment. He supported the position of the transport minister, Alexander Dobrindt (CSU), who has proposed a change to the law that provides for increased corporate liability. Brinkhaus, on the other hand, said that “VW could become a burden on the budget”. It is now just a question of waiting and seeing how the situation develops.

This article was previously published by EurActiv Germany.