A Dim Light at the End of the Tunnel

The German Federal Ministry of Finance’s Working Party on Tax Revenue Estimates has presented its new forecasts to the government authorities at federal, state and municipal levels. The forecasts confirm that tax revenues will fall significantly in the current year and the following years. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at ZEW Mannheim, comments on this matter:

“The most recent tax revenue estimates show that it is too soon to give an all-clear. There is only a dim light at the end of the tunnel. According to the current figures, it will take until 2022 for Germany to reach the same level of income of 2019. At the same time, government spending has seen a very dynamic growth. And the most recent losses in tax revenues due to the unforeseeable consequences of the second wave are not yet reflected in the figures. The fact remains that the entire next legislative term will be characterised by significantly lower tax revenues and a sharply rising debt level. It is therefore all the more important for the federal government to seriously weigh the costs against the benefits of coronavirus recovery measures. Policymakers will have to take greater account of the fact that the crisis will speed up the structural change and that capacities will shrink over several years in sectors that have been particularly hard hit by the crisis. For many companies, the support measures will only postpone the problem of insolvency; it will not prevent them from eventually going bankrupt. In these cases, large-scale support measures that compensate businesses for their coronavirus-related losses make little sense and only hinder the inevitable adaptation process.”