Tax estimate: Tax revenues are likely to increase

Despite the economic downturn, the federal, state and local governments can probably expect higher tax revenues up to 2026. However, some of the previously announced tax relief are not yet included in the tax estimate.

Federal Finance Minister Christian Lindner announced the results of the current tax estimate today – they form the basis for further budgetary deliberations in the Bundestag. Politically, Sven-Christian Kindler from the Greens and Peter Boehringer from the AfD differ a lot, but the two budget politicians agree on one thing: “Seldom has a tax estimate been as uncertain as this one,” says Kindler. And Boehringer doubts that the new tax estimate “allows reliable forecasts for 2023.”

Nevertheless: Without an estimate of the tax revenue it is not possible – no matter how uncertain this may be at the moment. Without the relevant figures, which will be presented today, the Bundestag would not be able to draw up the budget for the coming year, says Dennis Rohde, the budget spokesman for the SPD parliamentary group. The assumption for economic development is also important. Because it depends on how much debt the state can incur without violating the debt rule of the Basic Law.

The recession is affecting taxes

There is already an assumption for economic development: the federal government, in agreement with the leading economic research institutes, is expecting a minus of 0.4 percent in gross domestic product in the coming year. According to Professor Timo Wollmershäuser from the Munich Ifo Institute, Germany is already in recession: “The German economy is shrinking. And our forecasts assume that this will continue at least in the winter.”

In fact, a shrinking economy suggests that tax revenues could also decline. Corporate taxes in particular depend heavily on the economy, because more profits are made in good times than in bad times. However, there are always delays here, says the CDU budget politician Christian Haase. Tax revenues are unlikely to collapse any time soon.

Inflation is key

However, the main factor for the development of tax revenues in the coming year is likely to be inflation. Despite the energy crisis and recession, politicians can ultimately expect higher revenues. Between January and September of this year, the federal government was able to collect around ten percent more taxes than in the same period of the previous year, despite the economic slowdown. The higher prices are particularly noticeable in the case of value added tax.

Government spending is also increasing

But the FDP budget politician Otto Fricke has warned that inflation is the “false friend of the householder”. According to the Liberal, higher tax revenues on paper would quickly arouse greed. The state itself also feels the effects of inflation.

Gesine Lötzsch, who represents the left in the budget committee of the Bundestag, says: “On the other hand, of course, everything will be more expensive.” Because inflation also increases government spending, especially in terms of personnel.

This is an issue above all for those countries that have a high proportion of personnel costs in their budgets. At their meeting with Chancellor Olaf Scholz next week, they not only want to discuss the extent to which consumers and the economy will be relieved in view of the energy crisis, but also how the costs will be divided. The tax estimate will be an important basis for this.

New laws still have to be considered

However, some of the data that is published today still needs to be corrected. Because the basis for the tax estimate is the current legal situation. However, some of the relief already announced has not yet been passed by the Bundestag and Bundesrat.

This applies, for example, to the plans of Federal Finance Minister Lindner to adjust the wage tax rate to inflation so that higher wages do not automatically lead to higher tax rates – keyword: cold progression. Around ten billion euros are planned for this alone, which have not yet been taken into account in the tax estimate. This also applies to Lindner’s recent announcement that the basic tax allowance will be further increased.