The state collected significantly more taxes than in the previous year. The reason for this, however, is the government aid in August 2022. Meanwhile, the Ministry of Finance expects the economy to continue to be weak.
Federal and state tax revenue increased significantly in August. At 58.85 billion euros, they were 8.6 percent above the previous year’s level, according to the monthly report published today by the Federal Ministry of Finance (BMF). However, the department referred to a lower comparison basis in August 2022 due to the tax aid in the wake of the sharp increases in energy prices. This has now led to a significant increase in wage, sales tax, energy and capital gains tax.
Increase without base effect at four percent
Economists warned against overestimating the significant increase due to the statistical effect. “The months of the previous year were characterized by the ad hoc measures during the energy crisis,” explained tax estimator Jens Boysen-Hogrefe from the Kiel Institute for the World Economy (IfW) to Reuters. Accordingly, the noticeable increase in August should not be misinterpreted as indicating additional leeway in public budgets.
The increase is likely to be even stronger in September. “The late summer plus has already been taken into account in the budget planning,” said the expert. “Unfortunately this is not a positive surprise.”
Adjusted for the base effect, the increase in taxes was an estimated four percent, explained the BMF. In the first eight months of the current year, tax revenue only grew by a total of 1.1 percent to just under 528 billion euros. Experts expect an increase of almost three percent to 838 billion euros for the year as a whole.
Ministry of Finance expects continued weakness Economic dynamics
The latest economic indicators continue to point to weak momentum after the German economy stagnated in the second quarter, the monthly report also said. “Stimulus for further development can be expected from the development of private consumption, as the labor market remains robust.” Although the economic downturn is no longer leaving its mark on the job market, unemployment remains at a low level.
The inflation rate in the coming months is likely to remain high, but at least to decline. Surveys among companies by the Ifo Institute recently showed a further decline in the proportion of companies planning price increases in the coming months, the BMF reported. Currently, almost 15 percent are apparently still planning increases. New forecasts from the federal government on the economic situation are expected on October 11th.
Former Finance Minister Steinbrück calls for a “better debt brake”
Several economic institutes had recently lowered their forecasts. The ifo Institute expects German economic output to decline by 0.4 percent this year. Experts from the German Institute for Economic Research (DIW) also expect a decline of 0.4 percent. The RWI – Leibniz Institute for Economic Research is even more pessimistic, predicting an economy that will shrink by 0.6 percent.
In order to stimulate the economy, former Federal Finance Minister Peer Steinbrück has now spoken out in favor of reforming the debt brake, which was anchored in the Basic Law during his term in office. “We need a better debt brake,” the Social Democrat told the “Tagesspiegel”. “It should allow more public investment – not consumptive spending!” Steinbrück continued that limiting the federal government’s net borrowing to 0.35 percent of economic output “is unsustainable given our poor infrastructure.”