ZEW Economist Friedrich Heinemann on Tax Revenue Estimates

The German Federal Ministry of Finance’s Working Party on Tax Revenue Estimates has presented the results of its new analysis and slightly revised the previous expectations upwards by 6.9 billion euros until 2027. Professor Friedrich Heinemann, head of the Research Unit “Corporate Taxation and Public Finance” at ZEW Mannheim, explains:

“The current tax estimate underscores the need for clear priorities in the federal budget. The significant increase in social spending is narrowing the scope for future expenditures. In addition, tax relief for employees in the basic tax allowance and tax incentives to extend working hours are just as urgently needed as a corporate tax reform to safeguard German competitiveness. In this situation, tax subsidies for individual sectors would be precisely the wrong approach. The federal government should take a clear stance and announce the end of the reduced VAT rate in the hospitality sector by year-end. Making this tax subsidy permanent would be fundamentally wrong. This is a unanimous consensus in tax research. A 7 per cent VAT for the hospitality sector amounts to an unproductive, long-term subsidy for an industry undergoing structural changes. Not only is this subsidy costly, but it also fails to address future challenges. Moreover, it disproportionately favours wealthy households, exacerbating social imbalances. Politicians who cannot withstand the pressure from interest groups in this financial situation have not grasped how difficult the outlook for the future of public budgets is.”

A ZEW analysis now shows that the return to 19 per cent taxation makes economic sense and is socially just, because challenges such as structural change, inflation and labour shortages affect other sectors just as heavily.